GBP/USD Holds Near 5-Week Highs, Sterling Bears Slightly Less Confident

Sterling can hold a slightly firmer tone in the short term, although stronger than expected CPI inflation data will be needed to trigger further sharp gains in GBP/USD given scope for a further limited underlying dollar recovery.

The UK currency maintained a firm tone on Friday and GBP/USD tested resistance above 1.3200 for the first time in over five weeks. The US dollar was undermined by further concerns surrounding hurricane Irma and diminishing expectations that the Federal Reserve would increase interest rates again this year.

GBP/USD closed just below 1.3200 as the dollar secured a limited correction late in the session.

Credit card issuer Visa reported the first annual increase in consumer spending since April with a 0.8% gain in the year to August which helped underpin confidence in the overall growth outlook.

There was a further small increase in short, non-commercial Sterling positions in the latest week to just below 53,000 contracts. This was the 4th successive weekly increase to the highest level since early May. Given some resilience in the spot rate and an increase in short positions, there is a slightly greater chance of short covering.

Sterling maintained a firm tone on Monday and GBP/USD consolidated just below 1.3200 in Europe.

A recovery in oil prices and firmer tone surrounding risk conditions supported the UK currency, although the dollar also made some headway on hopes that damage from Irma would be not as severe as expected.

The parliamentary Brexit debate will be monitored during the day and any government defeat for the EU Withdrawal bill could have some impact in undermining Sterling. The overall impact should be limited with serious negotiations unlikely to begin until after the September 24th German Federal election.

GBP/USD 4-Hour Chart

gbpusd11-09-17

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.