FxWirePro: Pound bulls aiming for 1.38 on inflation and rate hike speculation

Pound continues to defy downside pressure over Brexit as the dollar remains weak and inflation is well above the target of Bank of England (BoE). Yesterday’s report showed that consumer price inflation in August reached 2.9 percent, while core inflation is at 2.7 percent. The level of inflation is hovering at the highest since 2014.

The pound has declined today over weaker than unemployment report. While the unemployment rate declined to a new low of 4.3 percent, average earnings growth including bonus was at 2.1 percent, 0.2 percent lower than expected. The pound is currently trading at 1.328 against the dollar, and we are expecting the pound to remain upbeat going ahead riding on rate hike speculation and higher inflation. Our calculations suggest that bulls are aiming for 1.38 against the dollar, with interim targets around 1.347 and 1.356.

Kindly note, despite our positive outlook for the pound in the short-term, we remain bearish over the longer horizon due to Brexit.