Sterling Short Squeeze Intensifies
GBP Soaring
Amidst the current period of USD weakness, GBP continues to be one of the stronger performers against the Dollar. The shift in Fed outlook on the back of weaker-than-forecast US inflation data this week has sparked a breakout move in GBPUSD which is now at its highest level since early May. Market pricing for a Fed rate hike by year end has dropped from around 95% to roughly 75% following misses on both the CPI and PPI readings for last month. If we see a further dovish repricing in the Fed outlook this could see extended USD weakness, helping drive GBPUSD higher still.
GBP Short-Squeeze
Interestingly, much of the GBPUSD rally looks to be driven by the short-squeeze in Sterling short positions which has taken place in recent weeks. Futures data recently reflected the largest build in GBP short positions since 2017 and the unwinding of this position has helped fuel the spike in GBP. With that in mind, the question now is whether the move can start to build proper bullish momentum for a sustained topside run or if this is to be a temporary peak.
UK Political Shift
Positive sentiment around political change in the UK has been a key factor for the unwinding of GBP short positions. Indeed, with a general level of optimism around the expectation that Andy Burnham will replace Keir Starmer as UK PM should keep GBP supported near-term with the longer-term prospects for the Pound seen tied to the policies that eventually materialise and how markets react to them.
Technical Views
GBPUSD
The rally in GBPSUD has seen the market breaking above the 1.3446 level and above the triangle top. If bulls can sustain this breach, focus will be on a push towards 1.3656 next. Downside, 1.3446 remains the key support to hold.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.