Sterling traders are speculating that the Bank of England (BoE) will aim to increase rates to quell a swelling housing market and an improving economy. Housing prices in the United Kingdom hit all-time highs, and economists are expecting Wednesday’s employment figures to show a drop in the unemployment. However, the general consensus is for the unemployment rate to remain at 7.2 percent.
The BoE has allowed the benchmark rate stay at .5 percent since 2009; and traders are becoming more bullish. The net-long-to-short differential from hedge funds and large speculators increased to 46,477 contracts, according to data from the Commodity Futures Trading Commission (CFTC).
BoE Governor Mark Carney is still hesitant to increase rates fearing the recovery is still fragile. Conversely, the International Monetary Fund (IMF) recently raised its growth forecast. “There’s a good chance through the summer months the market will start to consider a Bank of England rate move sooner rather than later,” said Derek Halpenny, head of global markets research at Bank of Tokyo-Mitsubishi UFJ.
The United Kingdom will also report consumer price index (CPI) data on Tuesday, which is expected to tick a tenth-percent lower to 1.6 percent from previous figures of 1.7 percent. Consumer prices have steadily declined from the 12-month high of 2.9 percent in July 2013.
GBPUSD declined coming into early trade Sunday night, but the pair was able to find support on the 50 EMA and has rallied though 1.6734. Price action is lingering below resistance at 1.6745 and remains underneath the downtrend created on the pullback from 1.6821. Look for intraday support at the 50 EMA before reaching support at 1.6680/85. A break above current resistance would leave open movement to 1.6760 and would place price action above the downward resistance.