French Elections: GBP will provide protection if Le Pen wins

Another currency deeply affected by speculations has been the GBP, on which we remain pointedly constructive. First we suspect that the GBP will provide a level of protection from a surprise Marine Le Pen outcome in the French elections. Secondly, inflation continues to pick up in the UK further adding to the debate over BoE monetary policy strategy. While real-estate inflations has eased marginally (reflecting softer house price growth and weaker ONS data), it remains at a decent pace.

Yesterday's UK PPI data surprised to the upside as input prices rose 17.9% y/y. Headline CPI rose 0.4% falling from the elevated 0.7% but above the expected 0.3% (annual remained steady at 2.3%). Core CPI also fell to 1.8% from 2.0%. Yet despite the easing, there is enough price pressure in the system to force the BoE to discuss a policy stance. Just the hint of tightening policy in the UK will keep GBP supported.

(By Peter Rosenstreich)