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Outlook Fragile Despite Flattering Carry Profile, Positioning

GBP
  • OIS pricing has started to a see a strong chance of a BoE peak rate at 6.25% (following last week's CPI / BoE meeting, peak pricing now seen at the Jan'24 BoE meeting) - thereby boosting GBP's carry profile and widening swap spreads over equivalent currencies.
  • Despite all these underlying gyrations - spot GBPUSD has failed to make any headway above the 1.28 handle, even on the back of sharply improved positioning. Options-implied pricing sees a ~48% chance of GBP/USD trading above 1.28 at year-end - and this gauge has actually deteriorated, not improved, against pre-BoE, pre-CPI levels.
  • This suggests GBP will struggle to stage much of a interest rate-led rally, with the political risk/econ risk premium denting the attractive carry profile and keeping GBP highly volatile near-term.
  • The technical outlook is more positive, with the primary uptrend intact. Last week’s pullback appears to be a correction and the move lower is allowing a recent overbought condition to unwind. Support to watch lies at 1.2633, the 20-day EMA.
  • The recent break of 1.2680, the May 10 high and a bull trigger, strengthens a bullish condition and opens 1.2849 next, a Fibonacci projection. A break would confirm a resumption of the uptrend
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