Where we are: GBP/USD is currently trading at 1.3515, up 0.31% on the day, having traded in a range of 1.3454 to 1.3535. The pair is consolidating gains after the Bank of England’s rate decision, and trading above yesterday’s New York close. Intraday momentum remains positive, but the pair faces resistance at the recent high of 1.3535.
What’s driving it: Sterling is finding support from the Bank of England’s cautious stance, even after holding rates steady at 4.50%. The 8-1 vote, with Dhingra dissenting for a cut, signals that the MPC remains concerned about persistent inflationary pressures, particularly in services CPI near 5% and resilient wages. Coupled with the BoE’s statement that they “stand ready to act as necessary” to steer CPI inflation toward its 2% medium-term target, this reinforces the perception that further rate increases are possible later this year. A weaker dollar, with the DXY trading down at 98.33, amplifies Cable’s upside.
- The Bank of England maintained rates at 4.50% with an 8-1 vote, signalling reluctance to commit to rate cuts.
- UK 2-year Gilts have declined 14bp to 4.449%, indicating easing near-term rate hike expectations, however this has not translated into weakness in Sterling.
- CFTC data shows that speculators remain moderately short GBP, at the 27th percentile, suggesting squeeze risk.
NY session focus: The key event for the NY session is the release of US Advance GDP q/q and Core PCE Price Index m/m at 08:30 ET. Strong US data could reignite dollar strength and pressure GBP/USD. Watch for a break above 1.3535 to target further upside, while a move below 1.3454 would signal a potential reversal. The trade that’s working is buying dips in Cable, while the trade at risk is shorting GBP against the prevailing trend. The pain trade would be a significant dollar rally driven by a strong US GDP print.