GBP Strength and EUR/GBP Testing Lows Amid Economic Data

GBP: EUR/GBP ready to test the lows

Higher than expected wage and inflation numbers pushed the Sonia curve to pricing-in 6.0% rates for the first time in a month. On the inflation side, our UK economist notes in this article how the surprise pick-up in service inflation was primarily due to rents, a factor that should not meet the Bank of England’s definition of “persistent”.

While a 25bp September hike should be a done deal, we still think a November move is an open question, given indications of abating price pressures in other parts of the economy. Still, the pound is now enjoying a post-repricing strength that looks unlikely to abate rapidly, given the lack of market-moving data and BoE speakers. EUR/GBP looks on track to retest the 0.8505 July lows, also given the lack of strong idiosyncratic defence for the euro.