Where we are: Cable is grinding around the $1.3410 level, recovering from an overnight low of $1.3385 as European cash desks absorb this morning’s inflation data. The pair remains remarkably well-supported above the key $1.3400 handle, sitting just 15 pips below yesterday’s New York close of $1.3425. Resistance is firmly established at the $1.3450 mark, while a breach of today’s European lows would open the door for a test of the $1.3350 support zone.
What’s driving it: UK consumer price inflation unexpectedly held steady at 2.8% YoY in May, missing forecasts of a rise to 3.0% and easing fears of a lasting energy-driven shock. This softer headline print has solidified the Bank of England’s cautious hold stance at 4.50% ahead of tomorrow’s decision, reducing the immediate pressure for any hawkish pivot. However, Sterling’s downside remains heavily restricted by sticky domestic services inflation, which accelerated to 3.7% and keeps the MPC reluctant to commit to an imminent rate-cut path. This domestic inflation resilience is keeping Gilt yields anchored, which limits the downside even as the market looks ahead to a crucial Fed session.
- UK CPI printed at 2.8% YoY (vs 3.0% forecast), with core CPI ticking up to 2.6%, signaling that the broader domestic price pressures are less pronounced than feared despite ongoing transport cost shocks.
- The Bank of England’s current 8-1 vote split—with only Dhingra dissenting for a cut at the last 4.50% hold—is highly unlikely to shift toward easing tomorrow given that services CPI remains sticky and wages remain resilient.
- Speculator positioning in the British Pound is heavily crowded short, with net non-commercial contracts at -64,213 (representing the 17th percentile of the 52-week range), leaving the currency highly vulnerable to a violent short-squeeze on any hawkish BoE rhetoric or dovish US outcomes.
NY session focus: As we head into the New York open, the immediate focus turns to US Retail Sales at 08:30 ET, followed by the heavyweight FOMC interest rate decision at 14:00 ET and Powell’s press conference at 14:30 ET. Buying dips toward the $1.3380 support has been the winning intraday trade today, but this strategy is highly at risk if the FOMC dot plot delivers a hawkish median projection that revives the dollar. A hawkish surprise that breaks the $1.3350 level will trigger a stop-run, but the true pain trade for this heavily short-positioned market is a dovish Fed that catapults Cable back through $1.3500.