GBP: Softer Ahead of CPI Risk Event

GBP: Softer into the CPI risk event

The pound has continued to show more vulnerability than most of its G10 peers at the start of this week. EUR/GBP has crept higher in the past few sessions, back to the 0.8600 gauge as volatility in global central bank tightening expectations after the US CPI slowdown seems to have asymmetrically hit those curves that had more room for a dovish repricing, like the GBP one.

We are also observing some positioning ahead of tomorrow’s key release of the UK inflation numbers. As discussed by our colleague James Smith here, CPI data will make or break a 50bp August rate hike by the Bank of England. Markets continue to lean on the hawkish side with their pricing: 44bp for August, 116bp in total. Still, peak rate expectations have remained volatile and were scaled back by nearly 15bp yesterday.

Today, the UK calendar is empty. We suspect EUR/GBP can remain broadly supported into tomorrow’s CPI.