Sterling Rises as Cable Clears January Trendline Amid Policy-Parity Trade

The GBP/USD currency pair rose to 1.3530 on August 10, clearing its January trendline after staging a bullish breakout following the nonfarm payrolls release. This technical event marked a significant medium-term hurdle for the pair, which had been capped by this trendline since January 28.

The Bank of England and Federal Reserve both hold their benchmark interest rates at 3.75% and 3.50%-3.75%, respectively, with identical hawkish minorities voting to hike. This policy-parity trade has not yet been fully priced in the market, creating a structural change that favors sterling.

The recent data release from the UK showed a headline CPI of 3.4% year-over-year, matching consensus and slowing from the previous month's 3.5%. The core CPI also matched expectations at 2.5%, with energy prices contributing to the rise due to a rebound in Brent crude.

The market had priced out a September FOMC decision hike following the weak July payrolls report, but the August release of nonfarm payroll data was not a surprise, keeping sterling bid. The scenario analysis going into the data release suggested that a core print above 2.5% would have triggered a hawkish repricing in short-term Treasury yields and exposed GBP/USD to a rapid downward move.