Sterling's near-term bias remains tilted higher after Wednesday's below-forecast U.S. PPI reinforced Tuesday's soft CPI, signaling — at least for now — that U.S. inflation has resumed its descent toward the Fed's 2% target and reviving expectations for lower U.S. rates.

Despite the favorable backdrop for the pound, traders remain cautious, keeping GBP/USD within its recent range of 1.3276-1.3452, albeit near the top of that band. The reluctance to push the pound higher stems from concerns that the current inflation data does not yet reflect the recent surge in oil prices, which have rebounded from mid-$60s to around $80 per barrel amid escalating U.S.-Iran tensions.

Also supporting the pound is the unwinding of sizeable GBP/USD net speculative shorts. With UK political and fiscal concerns abating and U.S. rate-cut expectations firming after the inflation data, traders are trimming heavy short exposure, preferring to lighten risk as summer liquidity thins.

Technically, GBP/USD meets initial resistance at 1.3437, the daily cloud top repeatedly tested of late, ahead of 1.3452, the July 10 high. A close above 1.3452 opens the way toward 1.3504/09, the May 25/26 highs, and — should global inflation genuinely ease further — bulls will target 1.3658, the May 1 high. Supports sit at the July 8 low of 1.3323 and the range base near 1.3276, leaving cable poised near range highs as markets await confirmation that disinflation can withstand rising energy costs.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)