Where we are: GBP/USD is trading at 1.3214, down 0.31% on the day, having pulled back from the overnight highs. We’ve seen a clear risk-off tone emerge in European equities this morning, and Cable is reflecting that, trading below the prior New York close. Key support sits at the 1.3180-1.3200 zone, while immediate resistance is seen at 1.3250.
What’s driving it: The Bank of England’s hawkish hold stance remains the dominant domestic driver, with two MPC members already voting for a hike. This is keeping a floor under Sterling, especially with sticky services inflation and wage growth a persistent concern. Today’s Flash Services PMI at 09:30 BST is the immediate focus; a print below 50.1 would signal contraction and add pressure, while an upside surprise would reinforce the BoE’s hawkish bias. The political backdrop, with Andy Burnham now the leading candidate to replace Keir Starmer, is offering some relief from leadership contest uncertainty, but the longer-term fiscal implications are still largely unpriced.
- Bank of England’s hawkish hold, evidenced by the 7-2 vote split in the last meeting, continues to underpin Sterling.
- Sticky services inflation (Core CPI YoY at 2.6% in May) is a key concern for the BoE, limiting downside for GBP.
- Net non-commercial positioning shows a crowded short at -71,585 contracts, suggesting significant squeeze risk on any positive Sterling surprise.
NY session focus: The 09:30 BST Flash Manufacturing and Services PMIs are the critical domestic data points for the session. A Services PMI print significantly above the 50.1 forecast would likely see Cable push higher towards 1.3250 and beyond, testing the crowded short positioning. Conversely, a print below 49.0 would signal a sharp economic slowdown and could see us retest 1.3150. The US Flash PMIs at 09:45 ET will provide broader market direction, but Sterling’s reaction will be dictated by the domestic data’s implications for the BoE. The pain trade here is a strong Services PMI print, forcing shorts to cover into a BoE that is increasingly signalling a higher-for-longer rate path.