Where we are: GBP/USD is currently trading at 1.3502, down -0.12% on the day, and struggling to hold onto gains. The pair has traded in a relatively tight range of 1.3495-1.3528 thus far, slightly below yesterday’s NY close, showing a mild bias to the downside. Overall, the mood is choppy; buyers failed to sustain an early probe above 1.3520.
What’s driving it: Cable’s tepid performance reflects the BoE’s cautious stance amid resilient UK inflation, exacerbated by a strengthening dollar. The Bank of England held rates steady at 4.50% at its last meeting with an 8-1 vote, and recent CPI data showing inflation at 3.3% YoY in March (up from 3%) suggests that the MPC will maintain its data-dependent approach. The 2-year Gilt is up 6bp on the day to 4.493%, reflecting sticky inflation expectations, though it is difficult to see that bullish move translate into sustained Cable upside ahead of key USD risks.
- The UK 2s10s curve is currently steep at +52bp, indicating expectations for future rate hikes, but the curve alone can’t overcome USD strength.
- The latest CFTC data shows net non-commercial GBP positioning at -52,039 contracts, which is moderately short, but not at a squeeze extreme.
- The Prudential Regulation Authority (PRA) published plans to support resilience in the life insurance industry, a sign of concern over stability in the financial sector but not a driver for Cable right now.
NY session focus: All eyes are on the 14:00 ET FOMC decision, statement, and subsequent 14:30 ET press conference. A hawkish surprise from the Fed would likely send the DXY higher, putting further pressure on GBP/USD and targeting the 1.3450 level, while a dovish surprise could trigger a relief rally towards 1.3550. Keep an eye on US 2-year yields — a breakout above 3.88% risks triggering a deeper Sterling selloff. The pain trade here is a hawkish Fed *and* a rally in Gilts, which seems unlikely but would leave Cable vulnerable to a sharp downside correction.