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Markets Maintain Sizeable GBP Short into BoE

GBP
  • Markets head into the BoE decision maintaining the largest net short GBP position since H2 2022, having built the net short position consistently across April. At 12.3% of open interest, markets may be exposed to the threat of a short squeeze should the BoE come in more hawkish than expected (e.g. Via an 8-1 vote split, or by pushing against the likelihood of a rate cut by August).
  • Such a squeeze higher would initially target the 200-dma of 1.2544, but it would take a firmer rally above 1.2634 to confirm a resumption of the recovery off the April low.
  • Conversely, nearby support in GBP/USD looks thin below 1.2466, leaving market focus instead on EUR/GBP's 0.8618 and firmer resistance at 0.8644. These levels will be in focus in case of any firmer easing signalling today, or a particularly negative downward revision to inflation projections.
  • While vols have been run higher in the lead-up to today's BoE - EUR/GBP may be the cross to watch rather than GBP/USD, as overnight EUR/GBP vols crest above 9 points, the highest since the February BoE decision (which also saw an MPR release).
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