The GBP has been well supported for most of the past few days, mainly on the back of rising rate expectations.

This is due to both higher-than-expected inflation data and BoE member Forbes stressing that interest rates may need to rise faster than the expected gradual path if they wait too long for lift-off. Most importantly, however, medium-term inflation expectations as measured by 5y forward breakeven rates have been strongly capped. This in turn suggests limited upside risks to inflation unless growth momentum accelerates from the current levels.

From that angle, next week’s focus turns to the preliminary Q2 GDP release, which we do not expect to make a case for strongly rising growth expectations. Accordingly, we do not expect the BoE to be in a hurry to tighten monetary policy any time soon.

e-Institutional Views

We therefore remain in favour of selling the GBP against the USD, which should benefit from more supported Fed rate expectations.

Elsewhere, speculative positioning has reached balanced territory. This suggests fresh buying is needed in order to push the GBP higher.

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