GBP/USD Rises on Cheaper Oil and Reduced Rate-Hike Bets
The GBP/USD currency pair rose by 0.07% to $1.3330 on Monday, July 26, as cheaper oil improved the UK's growth outlook. The move came despite a sharp drop in oil prices, with Brent crude falling more than 7% and WTI down to $83.10.
The technical configuration of the market, with four moving averages converging on the same price, suggests that sterling is waiting for an external input to break out of its recent range. However, the composition of Monday's move was notable, as investors scaled back Bank of England rate-hike bets, which would normally be pound-negative.
The sharp drop in oil eased worries about energy-driven inflation and tempered expectations for further tightening ahead of Thursday's policy meeting. The UK 10-year gilt yield fell five basis points to 4.99% alongside the move, indicating that yields are falling for the right reason - easing inflation expectations rather than fiscal panic.
The Pound's rise was also attributed to speculators covering shorts for four straight weeks, with net short sterling positions falling to $4.64 billion in the week ended July 20. This reduction in bearish exposure suggests that some of the July rally from 1.3165 to 1.343 may have been due to covering rather than fresh buying.
The setup for a range break is now in place, with light positioning, converged moving averages, and two central bank decisions inside 24 hours. Thursday's Bank of England decision will focus on the vote split, not the rate, as policy expectations are firmly anchored on a hold.