UK inflation figure to go unnoticed as investors focus on negotiations

After printing a new multi-month high on Monday, the pound sterling has stabilised gains at around $1.3785. Since the beginning of the year, the pound sterling and the single currency have been moving side by side, suggesting that the market was more focused on the Trump situation rather than the divorce between the EU and the UK. In our opinion, Brexit risks are currently underestimated and investors seemed to have forgotten that the EU has the upper hand and is currently taking a tougher stance on transition talks.

December inflation figures are due for release this morning. No major surprise is expected: the headline measure should eased to 3%y/y from 3.1% in November. The core measure, which excludes the most volatile components, is anticipated to come in at 2.6%y/y, down from 2.7%. Despite the improving inflation outlook, there is little chance that the BoE would step in any time soon as only two to three hikes are expected over the next 36 months. Therefore, we remain cautious regarding further GBP appreciation.

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