Where we are: GBP/USD is currently trading around 1.2585, testing the lower end of its recent range. Cable has traded in a tight overnight range of 1.2570-1.2610, and remains below Friday’s New York close of 1.2630. The pair is struggling to gain traction as political uncertainty and the potential for a less market-friendly government weigh on sentiment.
What’s driving it: Sterling is under pressure due to rising political uncertainty surrounding the potential entry of Andy Burnham into the leadership race. The prospect of Burnham, perceived as less aligned with bond market interests, is fueling concerns among investors. Adding to the negative sentiment, gilt yields remain elevated, reflecting the market’s anxiety over future fiscal policy. The current cautious stance of the Bank of England, evidenced by the 8-1 vote to hold rates at 4.50% and the MPC’s data-dependent approach, provides little support for the Pound.
- The potential leadership challenge from Andy Burnham is stoking fears of less market-friendly fiscal policies.
- The Bank of England’s cautious stance, with one MPC member dissenting for a rate cut, is keeping a lid on Sterling gains.
- CFTC data shows that net non-commercial GBP positioning is moderately short at -43,059 contracts, representing -15.2% of open interest — leaving Cable exposed to further downside.
NY session focus: Traders will be closely monitoring any further developments in the UK political landscape for potential catalysts to push Sterling lower. Keep an eye on the US 2-year yield, currently at 4%, for signals of a broader risk-off move that could exacerbate GBP weakness. Support lies at 1.2550, with a break below opening the door to 1.2500. Resistance is at 1.2630, the prior NY close. The trade that’s working is fading Cable rallies. The trade at risk is chasing Cable lower without accounting for short positioning and potential for a squeeze. The pain trade is a coordinated global rates rally that catches GBP shorts off guard.