GBP Holds Steady Ahead of May CPI Release: BoE's Ammunition Questioned, GBP/USD Eyes 1.30, EUR/GBP Trades Offered

GBP: Steady into Wednesday's May CPI release

Sterling is holding onto recent gains and as our UK economist James Smith outlines in our Bank of England preview, we doubt the BoE has sufficient ammunition (yet) to push back against the nearly five 25bp hikes expected before year-end. That suggests sterling can stay supported for the time being.

 

Technically, GBP/USD does look as though it can advance to the 1.30 area - though the macro catalyst for further gains appears unclear. Indeed, the UK press is really pushing the 'mortgage timebomb' story at present, but sterling probably does not correct lower until we see some softer price data - which may take a few months to come through.

 

EUR/GBP continues to trade offered. At least a hawkish ECB provides some pushback to the BoE pricing and we continue to forecast a higher EUR/GBP later this year - once the hot UK inflation story cools. EUR/GBP may find support here at 0.8500/8550.