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British Pound Forecast: GBP/USD Catapults Higher, USD Positioning Wipe Out

British Pound Forecast: GBP/USD Catapults Higher, USD Positioning Wipe Out

Justin McQueen, Strategist

GBP/USD Analysis and Talking Points

Position Cleansing for the US Dollar

The US Dollar remains on the backfoot with the latest move lower exacerbated by yesterday’s CPI report. As we highlighted yesterday, anything short of a sizeable upside surprise in inflation (relative to expectations) would mark a disappointment for the USD. Therefore, while the CPI report was confirmed at 7%, highest since June 1982, it was however in-line with analyst estimates. It is important to remember that when trading economic data, the most important thing is how it compares to the consensus, given that the consensus is what is priced in. The data could be 50, 60 year highs, significantly above the prior month’s reading, that doesn’t matter, what does matter is how it compares to expectations. Hence, why a near four decade high inflation reading resulted in a softer USD, as there was no fresh incentive to increase long exposure, particularly where many had been leaning for a higher than expected reading.

In-line data prompts a carbon copy reaction to last month

GBP/USD Catapults to 200DMA

That said, the combination of a softer USD and an unwind of short GBP positions has seen Cable towards its 200DMA, with the pair now its most overbought since February 2021.As such, with Cable essentially moving in a straight line since the turn of the year, I expect we will start to see some consolidation, what’s more the close will be important following the 200DMA breach. Should see a close above, this puts 1.38 in focus. However, I lean towards a slight mean reversion with a move back towards sub 1.37. Support at 1.3650. Elsewhere, UK political instability so far having a limited on impact on the Pound, although, a focus will be on Sue Gray’s report into the allegations that Boris Johnson broke Covid lockdown rules, which has the propensity to notably heightening political risk premium.

GBP/USD Chart: Daily Time Frame

British Pound Forecast: GBP/USD Catapults Higher, USD Positioning Wipe Out

Source: Refinitiv

GBP Net Shorts Unwind

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Source: Refinitiv

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