The pound is weaker against the dollar, underperforming most G10 currencies as markets digest mixed UK inflation data and a modest repricing of the Bank of England’s accommodative outlook, Scotiabank chief FX strategists Sean Osborne and Eric Theort said.
Sterling is under pressure despite improving sentiment signals
“The pound is weak, falling 0.3% against the US dollar and underperforming all G10 currencies except the Swiss franc.”
“Domestic risks remain high and markets are digesting the mixed CPI release, delivering a marginal surprise on the headline (3.4% y/y vs. 3.3% expected) and marginal disappointment on the fundamental level (3.2% y/y vs. 3.3% expected). This release led to a modest pullback in the Bank of England’s interest rate expectations, as it repriced some of the easing that had been priced in over the past week or so.”
“UK/US spreads remain weak, and as with the EUR – we observe a clear divergence between bearish fundamentals (spreads) and bullish sentiment with a notable rise in risk reversals showing a clear moderation in the protection premium against GBP weakness.”
