Sterling looks set to extend gains leading up to Tuesday's US CPI, with a risk-on tone -- marked by falling oil and rising AI and tech names stirring broad dollar selling -- lifting GBP/USD to a session high of 1.3426.

The rally propelled cable above its 200-DMA at 1.3416 and has been aided by softer long-end UST yields as traders brace for the inflation print, which may inform on the path of Fed policy into year-end and in 2027.

Reuters consensus looks for a slight firming, with core CPI around 2.7% year-on-year, up from a prior 2.6% — little surprise given the recent oil-led pressure as Middle East tensions lifted supply concerns and crude's price. Monday's dip undercuts that: Brent is down 4.7% at $94/bbl, well below late-October highs above $117, as traders discount US election anxieties and eye cooler inflation should the crude slide stick, which may exert further downside pressure on the US dollar.

On positioning, specs still hold sizable sterling shorts — long roughly $5bn, near 60,000 contracts short — ripe for unwinding into year-end. The specter of a hawkish BoE, given firm UK inflation expectations, plus a recent upbeat UK budget allaying fiscal concerns, likely opens the door to further short-covering after this past week's 25% drop in net IMM shorts.

Technically, bulls need a daily close above the cloud top at 1.3428 to stall bearish sentiment, then the Nov. 4-5 double top above 1.35 to target late-August highs below 1.37. A failure to hold the 200-DMA at 1.3417 and breach of the cloud top refocuses the Oct 28 low at 1.3274.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)