Where we are: GBP/USD currently trades at 1.3468, down 0.26% on the day. Cable has traded in a tight range of 1.3465-1.3505 so far, retreating after a brief push higher in early European trade. This level is below yesterday’s New York close, indicating some mild selling pressure building as we head into the US session.
What’s driving it: Sterling is softer following recent UK macro prints, with downside surprises to inflation alongside a modest rise in the unemployment rate. Specifically, April’s CPI and Core CPI releases showed significant deceleration (2.8% and 2.5% YoY respectively), further fueling expectations that the Bank of England might be closer to considering rate cuts, despite the MPC voting 8-1 to hold rates at their last meeting with Dhingra dissenting for a cut. The dollar is broadly firmer, with DXY at 99.05, further weighing on GBP/USD, but the core dynamic remains the recalibration of BoE expectations in light of the cooling domestic data. Gilt yields are little changed, with the UK 2Y at 4.283% and the 10Y at 4.850%.
- The 0.7 percentage point drop in Core CPI suggests disinflationary pressures are building faster than the BoE’s forecasts.
- CFTC data shows net non-commercial GBP positioning at -64,307 contracts, near the 15th percentile, which increases the risk of a short squeeze on any positive Sterling catalyst.
- The US-UK 10-year yield spread is at -36bp, providing a modest headwind to Cable, though it is the domestic narrative around the BoE that truly sets the tone.
NY session focus: All eyes will be on the 10:00 ET release of US CB Consumer Confidence, but the impact on Cable will be secondary to the overarching risk tone and its influence on the DXY. Watch for a break below 1.3465 to open up a test of 1.3430 support. On the upside, a push above 1.3505 could trigger a short squeeze towards 1.3535. The trade that’s working is short GBP/USD on dips, fading any rallies into the 1.35 handle. The pain trade for Cable is a surprise hawkish shift in BoE rhetoric that catches the crowded short positioning off guard.