Where we are: GBP/USD is currently trading at 1.3547, up 0.27% on the day, having printed a range of 1.3511 to 1.3576 so far. Cable is extending its gains from the Asia session, pushing through initial resistance at 1.3520. The move higher has been supported by broad dollar weakness as the DXY dips below 98.20. This morning’s move builds on the steadied performance near 1.35 after touching two-week lows.
What’s driving it: The primary driver is a weaker dollar, with the DXY losing ground as US 10-year real rates remain anchored and the 10-year breakeven inflation rate holds steady at 2.42%. The US-UK 10-year yield spread remains deeply negative at -63bp, favouring GBP. There’s also lingering concern surrounding the impact of the Iran war, keeping the Bank of England on hold, reducing the risk of immediate dovish surprises. CFTC data shows a moderately short positioning in GBP, suggesting room for further upside.
- Bloomberg headline: “Traders Buy Pound Protection on Policy, Election and War Risks” reflects the underlying uncertainty that could fuel a squeeze.
- Reuters headline: “Bank of England to keep rates on hold while it gauges impact of Iran war” reduces hawkish pressure on the Pound.
- The moderately short GBP positioning (-52,039 contracts) leaves room for a potential squeeze if the current risk-on sentiment persists, particularly if coupled with hawkish UK data later this week.
NY session focus: The key level to watch is 1.3575, a break above which could trigger further short covering towards 1.3600. US data will be the main focus. The trade that’s working is buying GBP on dips against the EUR as the UK inflation outlook remains stronger. Risk-on is prevailing but traders should remain wary of geopolitical headlines, which could quickly reverse the current trend. The pain trade would be a hawkish surprise from the Fed, sparking a dollar resurgence and pushing Cable back below 1.3500.