Market Spotlight: BOE In Focus As UK Inflation Hits 40-Year Highs

market-spotlight:-boe-in-focus-as-uk-inflation-hits-40-year-highs

April CPI Hits 9%The latest set of UK economic data released today confirmed CPI hit 40-year highs last month. Headline inflation rose to 9% from the prior month’s 7% while core inflation was seen jumping from 5.7% to 6.2%. With UK prices continue to balloon, there is a growing expectation that the BOE will be forced to act more aggressively then currently projected.This creates an interesting situation in GBP. With hedge fund short position at its highest levels since 2019 (around £5 billion), there is plenty of room for a GBP short squeeze to develop. We saw the makings of one yesterday, with GBP rallying almost 2% against USD. However, if the BOE suddenly upgraded its rates forecasts or took more aggressive action at the next meeting, this could fuel a sharp shift in GBP sentiment as the BOE looks to tame runaway inflation.Technical ViewsGBPUSDGBPUSD is currently rallying off the bear channel lows. With strong bullish divergence into those recent lows, conditions are ripe for a fuller correction. The retail market is currently around 50% short with this figure likely to grow as we move higher, fuelling further gains. Bulls need to see a break above 1.2626 near-term, opening the way for a test of the channel top and 1.2988 above.

Source: Tickmill

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