Where we are: Sterling is hovering near the 1.3200 handle, printing at 1.3205 after the Bank of England’s midday decision triggered a flush to its lowest level since April 3. The overnight range capped near 1.3260, but the subsequent 7-2 vote to hold rates at 3.75% sparked immediate sterling-selling down to 1.3201. This flush leaves Cable testing critical support around the 1.3180/1.3200 demand zone, well below yesterday’s New York close of 1.3255.
What’s driving it: The primary driver is the Bank of England’s decision to maintain the Bank Rate at 3.75%, accompanied by a dovish tilt as policymakers lowered their Q4 2026 inflation forecast to 3.25% from 3.6%. While domestic labour data at 07:00 London showed a gradual weakening with private sector wage growth slowing to 4.0%, the MPC is in no rush to ease given core CPI remains sticky at 2.6%. This domestic policy caution is playing out against a broader backdrop of falling global energy prices, where the US-Iran deal dragged WTI crude down 4.48% to $84.65, easing medium-term UK inflationary risks.
- The BoE’s 7-2 vote split to hold the Bank Rate at 3.75% combined with a downward revision in peak Q4 2026 inflation to 3.25% signaling a more comfortable path back to target.
- Cooling UK wage pressures, with the Average Earnings Index easing to 4.0% at 07:00 London, confirming that private sector wage growth is slowing to its lowest rate in five years.
- CFTC speculator positioning is at a crowded 17th percentile short (-64,213 contracts), creating a severe asymmetric squeeze risk on any hawkish headlines or positive data surprises.
NY session focus: Ahead of the New York open, the focus shifts to the 08:30 ET US Unemployment Claims (expected at 225K) and the Philly Fed Manufacturing Index (forecast 9.8) to see if US exceptionalism continues to pressure the pound. We are watching the 1.3180 level closely; a clean break opens the door to 1.3120, while a defense of this level likely triggers a fast short-covering rally back toward 1.3280. The high-conviction trade is selling rallies into 1.3250 with a tight stop above 1.3285. The ultimate pain trade for the street is a hot US data print that reverses the soft-dollar trend and forces a violent liquidation of remaining sterling longs.