Where we are: GBP/USD is trading around 1.2480, holding above the overnight low of 1.2465 but still below yesterday’s NY close near 1.2500. Sterling has been choppy, tracking swings in UK gilt yields amid heightened political jitters. Resistance lies at 1.2520, with support at the 1.2450 level.
What’s driving it: Domestically, the Pound is struggling under the weight of increased volatility in UK gilts. Political uncertainty surrounding PM Starmer’s leadership is exacerbating the situation, as highlighted by the FT’s “Disinflation disappears” piece citing pressure mounting on the PM. The BoE’s cautious, data-dependent stance is offering little support; the 8-1 vote to hold at 4.50% at the last meeting shows a reluctance to signal a cutting cycle despite the dissent from Dhingra. Rising US real yields, currently at 1.95%, are adding additional headwinds for the Pound.
- UK gilts facing heavy selling pressure in response to the latest ‘Starmer drama’ (CNBC).
- Net non-commercial GBP positioning is crowded short at -63,908 contracts, near the 15th percentile, raising the risk of a squeeze on any positive surprise.
- UK CPI at 3.3% remains elevated, exceeding the Bank of England’s 2% target.
NY session focus: The immediate focus is on the 08:30 ET US PPI data, where stronger-than-expected figures could trigger a further rally in US Treasury yields and weigh on GBP/USD. Keep an eye on the 14:30 ET Fed Chair Nomination Vote, which is expected to pass without drama, but any surprise outcome could rattle markets. A break below 1.2450 would open the door to further downside, while a sustained move above 1.2520 would suggest a potential short squeeze. The pain trade would be a rally above 1.2600 if Starmer were to unexpectedly quell political doubts.