Sterling remains anchored by four-week highs near 1.34, buoyed by Wednesday's stronger-than-expected UK CPI and PPI data, alongside other recent upbeat economic indicators, reinforcing expectations for a Bank of England rate hike at the upcoming November 5 Monetary Policy Committee meeting.

The inflation figures, which exceeded the BoE's target, have significantly increased market expectations for rate increases. LSEG's IRPR now suggests a near 100% probability of a 25 basis point hike in November, with a total of 114 basis points of hikes anticipated by December 2027. These BoE expectations outpace those for the Fed, which is largely expected to hold rates steady on October 28, with only 78 basis points of hikes priced in by December 2027.

Recent IMM positioning data showed a substantial short bias in GBP, with specs short approximately 107,000 contracts, valued around $8.9 billion. Given sterling's recent rally, this short position has likely been pared. My IMM metric previously indicated specs were short nearly 55% of all positioning, signaling a strong buy, a condition that has likely lessened given sterling's nearly 1% rise in the recently closed IMM period.

Headwinds remain. Next week's UK Autumn Budget must balance taming inflation against stimulating growth—no easy feat. The Oct 28 Fed decision looms too, with Chair Kevin Warsh's no-guidance practice lifting market volatility as futures eye a less-hawkish path.

For now, with the BoE's hawkish outlook and ongoing USD unwinding, bullish momentum for GBP/USD appears strong, targeting resistance at the upcoming daily cloud twist in the 1.3470s and possibly the September 9 high at 1.3566. Bears will need to breach the rising 10-day moving average at 1.3281 to regain control.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)