• Traders bullish on the British pound as Bank of England rate hikes expected, impacting the dollar.

• Attention on UK inflation data drop, remaining four times higher than Bank of England target, as GBPUSD probes lower levels.

Traders are heavily bullish on the British pound, with net long positions exceeding a whopping $4.7 billion as of July 11, the highest level since mid-2014. Traders are ramping up their expectations for the Bank of England to implement additional interest rate hikes while increasingly under the impression that U.S. rates are on the verge of reaching their peak. Notably, the US Federal Reserve has entered a “blackout period” ahead of their July 26 meeting. As a result, this sentiment could put downward pressure on the U.S. dollar.  

Meanwhile, the UK’s inflation figures are a major risk event to watch for this week. Although there is an expectation for a drop in the inflation rate (from 8.7% to 8.2%), it is anticipated to remain four times higher than the Bank of England’s official target. UK inflation data is due at 2 am (NY time) on Wednesday. 

On the chart, the GBPUSD continues to explore lower levels following a test of a high target near 1.31465 on the daily chart last Friday. The market saw a modest corrective downward move last Friday, and again the first trading day of this week. This allowed the 20-day moving average to catch up with the price action. The big question now is whether sellers can push prices below the psychologically important level of 1.3000 ahead of the release of UK inflation data. The presence of buying pressure adds uncertainty to the situation.