British Pound (GBP/USD) Boosted As UK Inflation Beats Expectations

British Pound (GBP) Price Outlook

  • UK inflation beats estimates.
  • Cable back to 1.4100, all eyes now on the Fed.

UK inflation rose more than expected in May, according to the latest data from the Office for National Statistics (ONS), driven higher by increased transport costs. CPI including occupier’s housing costs (CPIH) rose by 2.1% in the 12 months to May 2021, up from 1.6% in April, while CPI also rose by 2.1%, up from 1.5% in the prior month. Rising prices for clothes, fuel, recreational goods, and meals and drinks also contributed to the rise in CPIH.

GBP/USD is looking to pull back above 1.4100 in early trade, after hitting a one-month of 1.4034 yesterday. Sterling has been resilient over the last few months and remains well placed to push higher against a range of currencies. Cable traders however will need to factor in tonight’s FOMC interest rate decision before taking a longer-term position. While the Fed is fully expected to leave all policy measures untouched, the accompanying quarterly outlook and dot plot may well show the strength of the US economy and subsequent fears of higher inflation. Any taper talk, or movement in the Fed’s dot plot, will boost the value of the greenback and weigh on GBP/USD.

GBP/USD Daily Price Chart (November 2020 – June 16, 2021)

British Pound (GBP/USD) Boosted As UK Inflation Beats Expectations

Retail trader data show 49.69% of traders are net-long with the ratio of traders short to long at 1.01 to 1.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

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What is your view on Sterling– bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.