Where we are: GBP/USD is currently trading at 1.3473, up 0.12% on the day, within a relatively tight intraday range of 1.3451-1.3482. The pair is holding ground above its prior NY close, benefitting from a slightly softer dollar and continued expectations of Bank of England rate hikes. Price action suggests the upper end of this range is being tested, and a break could target intraday highs.
What’s driving it: Sterling is finding support from expectations that the Bank of England will deliver at least one, and possibly two, interest rate hikes this year. The market is pricing in a high probability of the first hike occurring in September. While recent UK CPI figures have shown a moderating trend (headline at 2.8%, core at 2.5%), the MPC remains cautious due to persistent strength in services CPI (near 5%) and resilient wage growth, making them reluctant to fully commit to a dovish path. The US-UK 10Y yield spread sits at -40bp, further supporting the currency.
- The Bank of England’s last decision on March 20th saw rates held at 4.50% with an 8-1 vote, suggesting a hawkish lean.
- CFTC data shows a crowded short position in GBP, with net non-commercial positions at -61,398 contracts, in the 19th percentile, increasing squeeze risk.
- The UK 2s10s curve is steep at +56bp, hinting at potential future growth concerns but, for now, reflecting the premium being placed on near-term policy tightening.
NY session focus: Traders will be closely watching 10:00 ET JOLTS Job Openings data in the US which will impact USD. Later, all eyes turn to 15:00 London when BOE Gov Bailey speaks, which could offer further insight into the MPC’s thinking. Key levels to watch on the upside are the intraday high of 1.3482, and beyond that, 1.3500. On the downside, support lies around 1.3450. The current trade is to buy dips in Cable while the hawkish BoE narrative holds. The pain trade is a surprisingly dovish Bailey that forces shorts to cover aggressively, squeezing Cable towards 1.3600.