Sterling remains range-bound, as recent economic data from both the U.S. and the UK have failed to provide a strong impetus for either bullish or bearish sentiment, keeping the pair within its 1.3475-1.3556 range. Today's mixed UK GDP and output figures had little impact on the general direction of GBP/USD. Meanwhile, U.S. Producer Price Index (PPI) data, which came in slightly below expectations, offered some support to the pound, helping it recover from session lows below 1.35 to trade around 1.3510. This was accompanied by a slight dip in U.S. Treasury yields and a continued softening of Federal Reserve hike expectations. October rate futures show a 55% probability of a 25 bp Fed hike, with 24 bps priced in for the December FOMC meeting. For the Bank of England, today's UK data did little to alter the policy outlook, with a November hike still seen at 60% and a total of 27 bps of hikes priced in by the December MPC meeting.

With both the UK and the U.S. following comparable rate paths, and with the likelihood of sustained high inflation due to oil prices, we may see continued short covering by GBP speculators. This could establish a floor for the pound just below 1.35, with stronger support at the 200-day moving average of 1.3413 and the daily cloud top at 1.3399. However, without a distinct yield or growth advantage for the UK, sterling is likely to encounter resistance initially at the July 15 high of 1.3556, followed by the early-May highs in the mid-1.36s.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)