OCBC’s Sim Moh Siong and Christopher Wong note that sticky UK inflation and firmer growth data are offsetting soft labour numbers, limiting dovish repricing for the BoE and cushioning the Pound. However, they expect GBP volatility to stay elevated into the 26 February by-election, with scope for EUR/GBP to drift lower once political risks subside and data resilience persists.
BoE repricing constrained by data mix
“Sticky inflation and a firmer UK growth pulse helped offset soft labour data, tempering the market’s shift toward a more dovish BoE and limiting GBP downside.”
“With the Greater Manchester by-election on 26 February, GBP volatility may remain elevated. We continue to see scope for EURGBP to retrace lower once political risks subside.”
“GBP opened the week before on the back foot after weaker-than-expected labour data but later stabilised as a hotter inflation print countered the softness.”
“Upside surprises in the flash February UK PMIs and January retail sales reinforced signs of an early-year activity pick-up following the Budget. January’s budget surplus was the largest on record, and better government borrowing data should ease fiscal sustainability concerns for now.”
“However, the muted GBP reaction to last week’s stronger data suggests investors may be waiting for political uncertainty around the 26 February by-election to clear before taking more decisive currency positions.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/gbp-choppy-trading-as-politics-cloud-outlook-ocbc-202602240714
