Where we are: Cable is currently trading at 1.3585, having tested but failed to convincingly break above the 1.36 level overnight. The pair remains rangebound, oscillating between 1.3550 and 1.3620 since the European open, and is slightly below Friday’s New York close of 1.3610. We’re watching to see if early weakness persists, or if dip-buyers step in ahead of the US open.
What’s driving it: Sterling’s resilience is being tested by the Bank of England’s cautious stance, which is increasingly at odds with hawkish market pricing. The MPC’s 8-1 hold in March, with Dhingra dissenting for a cut, highlights the internal debate. Recent UK data paints a mixed picture: while unemployment fell to 4.9% in January, sticky CPI, particularly services CPI near 5%, keeps the Bank on its toes. The market sees a roughly 50% chance of a Bank of England rate hike in June and expects two 25bp increases by September; this looks aggressive given the incoming data.
- The Bank of England held rates steady at 4.50% at its last meeting with an 8-1 vote split, highlighting the committee’s data-dependent approach.
- UK CPI remains elevated at 3.3% YoY in March, further complicating the BoE’s policy outlook.
- CFTC data shows crowded short GBP positioning, with net non-commercial positions at -60,639 contracts, placing it in the 15th percentile. A hawkish surprise could trigger a violent squeeze.
NY session focus: All eyes will be on US 08:30 ET data prints. A strong print will see those GBP shorts add to their positions; equally any further upside surprise in inflation will increase expectations of a BOE hike. Watch for reactions around 1.3550; a break there opens the door to 1.35. The trade that’s working is short GBP/USD on rallies to 1.3620. The trade at risk is a short squeeze fuelled by a dovish surprise on the US side. The pain trade is Cable punching through 1.37 and forcing shorts to cover into strength.