GBP: Room to soften against EUR – ING
|The pound could face renewed downside this week as UK services inflation is expected to undershoot the Bank of England’s forecast, adding a dovish tilt to rate expectations. With markets also bracing for details of the November budget, concerns over fiscal sustainability and potential tax hikes may further dampen sentiment, ING's FX analyst Francesco Pesole notes.
Soft UK services inflation to pressure GBP ahead of November budget
"Our economics team expects Wednesday's UK services inflation to undershoot the BoE's projection with a 4.6% read, which is also below the 4.8% consensus. That can modestly move the needle to the dovish side in the GBP swap curve and weigh on the pound this week."
"Incidentally, expect a steady flow of information about the content of the November budget in the coming weeks. That appears like a double-edged sword for sterling. Any concerns about fiscal sustainability will hit back-end gilts and spill over into the pound, while higher taxation should dampen growth and raise chances of earlier BoE easing."
"We retain a bullish bias on EUR/GBP, and see risks skewed to 0.88 into the budget event risk."
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