Sterling Holds Firm Ahead of UK CPI Data: Will the Rally Continue?

GBP: Sterling to hold gains into next week's CPI data

Sterling continues to hold gains as the market rigidly holds onto aggressive Bank of England tightening expectations. This year sterling's correlation with risk assets had fallen, suggesting perhaps that it should not be at the forefront of a risk rally. However, as above, we think the dollar environment is softening and we do not want to stand in the way of a GBP/USD rally. 

Looking at the charts it seems there is 'fresh air' between current levels (1.2750/1.2800) and 1.3000 – suggesting the latter beckons.

For EUR/GBP, the hawkish ECB helps strengthen the support at 0.8550, although next week's release of the UK June CPI will probably be the next big driver here, ahead of an expected 25bp BoE rate hike next Thursday.