Where we are: Sterling has charged through the 1.3400 handle during London cash trading, currently exchanging hands at 1.3425, near the top of its 1.3360 to 1.3435 intraday range. This breakout places Cable at its highest level since early June, extending the recovery from last week’s lows. We are currently trading well above yesterday’s NY close of 1.3350, with the bulls now eyeing key structural resistance at 1.3450. A clean close above 1.3400 tonight confirms the shift in near-term momentum.
What’s driving it: The Bank of England’s cautious hold at 4.50% remains the primary anchor for Sterling, as sticky services inflation near 5% and resilient wage growth continue to block any immediate path to rate cuts. UK gilts are holding their ground even as April headline CPI cooled to 2.8% and core CPI fell to 2.5%, leaving the MPC with little choice but to maintain a data-dependent, restrictive stance. This hawkish domestic backdrop is colliding with a massive squeeze in GBP positioning, which is being supercharged by a softer US dollar as preliminary peace talks in the Middle East drive global risk-on flows.
- UK inflation is cooling with headline CPI down to 2.8% and core CPI at 2.5% in April, yet the 8-1 MPC vote split in March highlights a central bank unwilling to rush into easing.
- The Bank of Japan’s historic rate hike to 1% to combat inflation pressures highlights a global policy tightening tail-risk, contrasting with the BoE’s expected stability.
- CFTC non-commercial positioning is a crowded net short at -64,213 contracts (17th percentile), triggering an aggressive short squeeze as the spot clears technical resistance.
NY session focus: Ahead of the NY session, our focus shifts to the upcoming US macro data at 08:30 ET, which will determine if Cable can sustain its break above 1.3400. A softer US print will open the door to a run toward 1.3480, while a hot print risks a rapid reversal back to the 1.3360 pivot. The trade that is working is buying intraday dips on Sterling as short positioning gets systematically dismantled. The pain trade is a continued, grinding short-squeeze toward 1.3500 that forces real-money accounts to chase the currency higher.