Can sterling keep marching to new highs?
GBP/USD rose to a trend high of 1.2995 in early NorAm trading, matching the July 29 2023 peak, and is likely to test mid-July 2023 highs in the 1.31's given the current lower trajectory for U.S. rates.
LSEG's IRPR page indicates Fed rates will fall at a faster pace than the BOE, lending support to GBP/USD.
Traders are now focused on UK CPI and PPI on Wednesday for clues to the path of UK inflation, which may have serious consequences for sterling.
The Reuters consensus forecast for UK y/y core CPI is for a steady 3.5%, with m/m CPI a touch lower at 0.1% versus 0.3% in May.
Should UK CPI surprise to the downside, UK-U.S. rate expectations could re-converge, scuttling the current sterling bid. A steady or upside inflation surprise is likely to provide fodder for further GBP/USD gains.
IMM net spec long GBP positioning has nearly doubled since June 25 1096742NNET. Should UK inflation surprise lower, those longs are apt to unwind en masse, putting initial support by the rising 10-DMA at 1.2834 in view.
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GBP Chart: https://tmsnrt.rs/3zGiT5z
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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