Where we are: Cable is trading with a firm bid at 1.3420 as the London session progresses, pushing past key resistance at 1.3400 to print its highest levels since early June. The overnight range saw the pair consolidate around 1.3380 before European cash opened with a clear risk-on tilt, fueling a breakout above yesterday’s New York close of 1.3365. On the daily chart, a sustained print above 1.3420 opens the door for a test of the late-May high near 1.3480, while the 1.3350 zone now pivots from resistance to short-term support.
What’s driving it: The Bank of England’s resolute policy stance remains the bedrock of Sterling’s resilience, with the MPC keeping the Bank Rate at 4.50% as wage growth and services CPI near 5% keep policymakers on high alert against premature cuts. This hawkish policy floor is colliding with a sharply improved global risk environment, as the preliminary US-Iran peace agreement to lift the Strait of Hormuz blockade triggers a broad-based unwind of defensive dollar positions. Even as headline UK inflation cools to 2.8% and core CPI prints at 2.5%, the widening yield premium on Gilts relative to European peers is defending Sterling from any dovish repricing ahead of Thursday’s vote. Consequently, the currency is acting as a high-beta vehicle for the global risk rally without the drag of an imminent domestic easing cycle.
- The Bank of England’s 8-1 vote split to hold rates at 4.50% confirms that the MPC requires a substantial collapse in services inflation before aligning with the global easing cycle.
- UK labor market slack is emerging slowly with unemployment creeping to 5.0%, but persistent wage pressures prevent the gilt curve from fully pricing more than one rate cut for the remainder of the year.
- CFTC speculator positioning is heavily skewed short at the 17th percentile of its 52-week range (-64,213 contracts), creating an explosive short-squeeze profile as global risk sentiment pivots.
NY session focus: Ahead of the New York open, all eyes turn to the US retail sales and industrial production prints at 08:30 ET, which will dictate whether the Treasury sell-off resumes or if the US 10-year yield breaks back below 4.40%. For traders, the long-Cable momentum trade remains the path of least resistance, targeting a run toward 1.3480 as long as the 1.3350 support level holds on an intraday basis. Conversely, any upside surprise in US macroeconomic data that pushes the US 2-year yield back above 4.15% puts tactical long positions at immediate risk of a shakeout. The ultimate pain trade is a rapid liquidation of the crowded Sterling short positions, forcing a structural squeeze that could propel Cable toward 1.3550 before the week is out.