Inflation data to keep underlying case for GBP recovery intact - BNPP

Research Team at BNP Paribas, suggests that while UK inflation is still far from levels that would be consistent with BoE tightening, they believe markets expectations, which currently imply a modest chance of easing over the next year, have swung too far in a dovish direction.

“We continue to expect two hikes next year starting in Q1 and our bias is a for a further EURGBP decline to 0.77 by the end of Q1 and 0.72 by the end of this year. Our economists expect UK headline CPI to have temporarily edged up in February to 0.4% y/y, while core inflation should firm to 1.3% consistent with developments in unit labour costs. 

Elsewhere in Europe, we would watch ECB speeches on Monday for further efforts to emphasize room for further rate cuts if needed. Stabilization and improvement in the German IFO and the Eurozone PMIs this week should mostly benefit Eurozone neighbour currencies, and we remain short EURSEK.”

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