- Speculators increased their bullish positions on the pound.
- Core inflation in the UK will likely remain elevated at 7.1%.
- The Fed appears to be approaching the end of its tightening cycle.
Today’s GBP/USD outlook is bullish. The pound remained around $1.31 against the dollar on Monday, ahead of an important inflation report.
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Furthermore, speculators increased their bullish positions on the currency, reaching the highest level since 2014.
Notably, the pound experienced a surge throughout June and July, reaching its highest level since April 2022 at $1.3144. This surge results from growing market expectations for interest rate hikes.
Although analysts anticipate a moderation in headline consumer prices, core inflation will likely remain elevated at 7.1%. The Office for National Statistics will report the latest inflation data on Wednesday.
The Bank of England responded to the persistently high inflation by raising its key interest rate by 50 basis points in June. Moreover, there is a possibility of another 50 basis point rate hike next month. Money market traders currently price approximately a 70% chance of a 50 basis point hike in August and a 30% chance of the BoE opting for a 25 basis point hike.
In contrast, the Fed appears to be nearing the end of its tightening cycle as inflation returns to around 2%.
Moreover, data from the Commodity Futures Trading Commission revealed that speculators increased their net long position in the pound. The value rose by $699 million to $4.693 billion during the week leading up to last Tuesday. This marks the largest such position since mid-2014.
When investors hold a long position in an asset, it typically indicates their expectation for its value to rise.
GBP/USD key events today
There is nothing big planned for today in the UK or the UK. As such, investors will likely keep speculating ahead of the UK inflation report.
GBP/USD technical outlook: Brief pause in bullish momentum.
After a big bullish surge, GBP/USD has paused near the 1.3101 resistance level. The bullish bias is strong as the pair sits above the 30-SMA. Furthermore, the RSI is slightly below the overbought region, showing solid bullish momentum.
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This price pause allows bulls to rest after a steep move. At the same time, it is allowing the 30-SMA to catch up with the price. Therefore, when bulls have rested enough, the price will likely climb to the 1.3201 resistance.
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Saqib Iqbal
