Where we are: GBP/USD trades at 1.3428, down 0.12% on the day, within a tight 1.3409-1.3450 range. The pair is struggling to hold gains after a brief push higher in early European trading. We remain below yesterday’s New York close, suggesting continued downward pressure.
What’s driving it: Governor Bailey’s remarks this morning are weighing on Sterling, reinforcing the Bank of England’s cautious stance. Bailey suggested tolerance for inflation above the 2% target given the soft real economy. This dovish tilt comes despite recent CPI figures that show inflation remains sticky, particularly in the services sector, and resilient wage growth that is keeping the MPC from signalling a clear cutting cycle. The dollar is catching a bid, with DXY at 99.01 (+0.07%), which adds further pressure on Cable.
- Bailey’s tolerance for above-target inflation signals a potential delay in rate hikes, contrasting with earlier expectations.
- UK unemployment rate ticked up to 5% in February, a lagging indicator of economic slowdown.
- CFTC data shows a crowded short GBP positioning (-64,307 contracts, 15th percentile), suggesting squeeze potential on any positive surprise.
NY session focus: Traders will be watching for any further reaction to Bailey’s comments. Focus remains on how resilient the US economy feels into the close. US 2s10s curve is +46bp. Key levels to watch are 1.3400 for support and 1.3450 as intraday resistance. The trade that’s working is fading Cable rallies. The crowded short positioning presents a notable squeeze risk if the BoE rhetoric pivots hawkishly. The pain trade is a hawkish Bailey U-turn and a sustained break above 1.3500, triggering short covering.