GBPUSD - a dovish BoE offers reasons to be short the GBP

2 בפבר׳ 2023

The BoE may have one more hike in them, but its 25bp at best with the market pricing terminal BoE rates at 4.27% by June – let’s see the next UK CPI print on 23 March and that could possibly seal the deal on a pause in the hiking cycle - the language from gov Bailey suggests a higher conviction of this playing out. UK gilts have found big buyers (10yr was -30bp, 2s -24bp) and GBPUSD 1-month implied volatility has dropped to 9.42% and eyes the 15 Dec lows of 8.52%.

The inability of GBPUSD to break 1.2440 has cost the GBP bulls, and the new language from the BoE has seen price accelerate to the downside, with the range lows of 1.2263 giving way. With price now eyeing a daily close below the 5-day EMA, I am either flat or short on this pair, but longs are not for now.

Trading the USD comes with an additional risk in the session ahead, as you’re effectively fighting positioning ahead of the upcoming US non-farm payrolls (00:30 AEDT) – the consensus here is for 190k jobs to have been created in Jan, with the U/E eyed at 3.6%, and average hourly earnings (AHE) at 4.3% – it’s the AHE variable that I think moves the USD and NAS100 most intently, as it did last month – the market is positioned for a softer wages print, so the pain trade comes on a print above 4.5%.

Taking the USD out of the equation temporarily we see that GBPAUD has broken down and prints further lower lows – a tough cross to act on as we have the RBA meeting next week (Tuesday 14:30 AEDT), and that could inject some uncertainty to hold exposures - but the flow is certainly favouring shorts – GBPJPY is also one I favour lower, with important support kicking in around the 156.0 levels.