Pound Sterling (GBP) has increased by approximately 0.6% against the USD, returning to the 1.29-1.30 range seen before recent tariff changes. This shift reflects a reduction in expectations for Bank of England easing, thus supporting wider UK-US spreads.
GBP/USD’s recovery is noteworthy, with the Relative Strength Index (RSI) rebounding from a dip into bearish territory. Resistance is anticipated between 1.31 and 1.32, while support may be found below 1.28, following trends observed in March and early April.
Interest Rate Expectations Shift
This latest move in Sterling has been driven by a clear shift in interest rate expectations, resulting in the pound regaining ground it had lost over the past fortnight. Market participants are scaling back on projections for aggressive easing by the Bank of England, and that repricing is directly affecting UK-US yield differentials. With fewer cuts priced into the short-term curve, support for the pound comes naturally – particularly in currency pairs where dollar strength has been sensitive to rate divergence.
From a technical point of view, the pair’s recovery above 1.29 has undone some of the previous damage to momentum indicators. That the RSI has responded quickly, moving back toward neutral after slipping near oversold levels, gives us a sense that bearish pressure has weakened for now. However, resistance just above current levels, around the 1.31 handle, has acted as a ceiling several times already this year – that range also overlaps with early February’s highs and will continue to draw attention.
For options traders, this shifting sentiment suggests near-term implied vols may stay bid around major data releases but could compress if spot settles into the 1.28–1.32 channel again. From our side, we’re watching for any return in gamma hedging activity near the top of the range, particularly from dealers exposed to barrier structures or weekly expiries. Given the recent positioning unwind, spot price movements above 1.30 are likely to coincide with fresh derivative flows.
Speculative Position Adjustments
At the same time, flows in futures have started to reflect a slightly less one-sided view of cable. Weekly COT data has shown a moderation in speculative short positions. That aligns with what we’ve observed broadly – leveraged names have pulled back from aggressive dollar-long bets and are rebalancing exposures, particularly ahead of UK CPI and labour market data that could steer front-end rates further.
It’s worth noting that typical patterns earlier this year have shown that GBP/USD tends to drift lower in the absence of clear central bank surprises. Traders should weigh this modest upside cautiously – if BoE officials strike any dovish note or US data supports sustained Fed hawkishness, the pair may struggle to hold above 1.30. However, barring fresh macro shocks, this renewed equilibrium around mid-1.29s suggests more two-way interest as we approach the next round of UK inflation prints.
From a vol surface perspective, risk reversals are now showing a mild skew toward GBP calls over puts, marking a change from early May. This suggests that markets are beginning to accept a more balanced outlook. But bullish structures should still be priced with tight ranges in mind and not extrapolated too far, especially with realised vol still lagging implieds in both 1-week and 1-month tenors.
Ultimately, the bounce in spot, and what it tells us about positioning, may offer short-term opportunities to trade the edges of a consolidating range. In terms of structure, short-dated straddles remain relatively cheap, and calendar spreads may offer value as long as expectations remain anchored near current policy guidance. Tracking intraday volumes and dealer flow near 1.3050 and 1.2800 should offer further insight into sentiment shifts.
