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Cable Takes Advantage Of Firmer Data, Hawkish Re-Pricing

GBP
  • Stronger-than-expected UK jobs and wage data triggered the biggest selloff in short-dated Gilts in over 8 months Tuesday, with bear flattening seen across the curve. BoE peak rates now seen reached in Feb 2024 (vs Dec 2023) and with pricing nearing a 6% handle for the first time since late last year.
  • Amid the data/market moves GBPUSD has thrived, bouncing back strongly following yesterday’s underperformance that saw the pair briefly drop as low as 1.2487. Cable strength has been further underpinned by a US inflation report that was largely in line with expectations which provided the path of least resistance as generally lower for the greenback. Cable currently looks set to close above the 1.2600 mark for just the fifth time this year.
  • Monday’s GBPUSD move lower appears to be a technical correction and a bull cycle remains in play. Resistance at 1.2545, the Jun 2 high, was cleared last week, and the weeks advance has resulted in a print above 1.2592, 76.4% of the May 10 - 25 downleg. A sustained break of this level would expose key resistance at 1.2680, May 10 high. The first support moves up to 1.2468, the 20-day EMA.
  • Wednesday sees domestic GDP data where the UK economy is expected to advance +0.2% m/m in April, in a soft rebound from the -0.3% m/m March contraction, whereby wet weather likely dampened spending appetite. A recovery in April services sector activity will likely drive the rebound. Focus then quickly shifts to the Federal Reserve decision.
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