Sterling looks set to grind higher in the near-term as unwinding of UK short positioning outweighs event risk.

Though GBP/USD softened slightly on Monday the pair remains anchored near trend highs by 1.34, as markets await Tuesday's U.S. CPI release for fresh clues on the Fed's near-term policy path. Also in focus is Fed Chair Kevin Warsh's testimony before the House Financial Services Committee on Tuesday, which will be parsed for any policy adjustments; yet given the new chair's reluctance to offer guidance outside of data releases, the appearance is unlikely to deliver any market-moving nuggets.

In the UK, Finance Minister Rachel Reeves' annual Mansion House speech is set to attract considerable attention from market participants. These events may heighten volatility, yet the overall landscape for GBP/USD appears complex due to ongoing geopolitical tensions that have recently pushed oil prices higher, consequently elevating global inflation expectations.

Technically, the pound has reversed last week's rise into the daily cloud, currently spanning 1.3437-1.3409. With limited fresh data on UK growth and inflation, and a significantly more stable political backdrop, short positions in the pound are likely to continue unwinding, potentially pushing GBP/USD higher. Bulls will target the cloud top near 1.3437 and the July 10 high at 1.3452. However, a downside surprise in U.S. CPI, given the recent dip in oil prices, could see bulls take out late May highs just above 1.35 on the way to testing early May highs in the mid-1.3650s.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)