British Pound (GBP) Price Outlook:

• November BoE meeting may see interest rates hiked.
• UK retail sales figures disappoint.
• UK October PMIs beat expectations.

Bank of England chief economist Huw Pill has warned that inflation could top 5% in the coming months, leaving the central bank in a ‘very uncomfortable place’. In comments to the Financial Times, Mr. Pill said that the November 4 BoE meeting is now ‘live’ for a potential rate hike from its current rate of 0.1%. Mr. Pill joins BoE governor Andrew Bailey in warning of rising price pressures in the UK.

While Mr. Pill’s hawkish tone on inflation should have boosted higher rate expectations, the market seems to be looking through this and instead is looking at his comments on the rates market. Mr. Pill said the market should take a more cautious approach to rate hike expectations saying ‘there’s a bit too much excitement in the focus on rates right now’. The market is now pricing in a 50/50 chance of a 25 basis point hike at November’s meeting, down from a 95% chance prior to Mr. Pill’s comments.

Today’s UK data releases paint a mixed picture with retail sales in September missing expectations while Markit PMI data for October comfortably beat expectations and last month’s figures. IHS Markit highlighted that while the UK recovery regained momentum in October, supply shortages hit manufacturing growth while cost inflation reached a new record high.

IHS Markit/CIPS Flash UK Composite PMI

For all major data and event releases, see the DailyFX Economic Calendar.

The British Pound is largely unchanged today against the US dollar, trading either side of 1.3800. Weekly resistance around 1.3835 should cap the upside in the short term, while a zone of support between 1.3710 and 1.3740 should hold today.

GBP/USD DAILY PRICE CHART – OCTOBER 22, 2021

Retail trader data show 46.24% of traders are net-long with the ratio of traders short to long at 1.16 to 1.The number of traders net-long is 1.23% higher than yesterday and 14.99% lower from last week, while the number of traders net-short is 6.93% lower than yesterday and 5.96% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

By Nick Cawley, Strategist, 22nd October 2021. DailyFX