BoE on track for May cut after disinflation surprise – Danske Bank

FXStreet Insights Team FXStreet

Prior to Easter, EUR/GBP rose on the soft inflation data for March only partly reversed since then on a dovish ECB, Danske Bank's FX analysts report.

Global risk aversion keeps pressure on GBP

"UK inflation in March came in lower than expected across measures with headline at 2.6% y/y (cons: 2.7%, prior: 2.8%), core at 3.4% (cons: 3.4%, prior: 3.5%) and services at 4.7% (cons: 4.8%, prior: 5.0%). The print came in below the BoE's expectations across measures. The largest downward contribution came from recreation and culture as well as transport, while clothing provided the largest upward contribution."

"There are though tentative signs that the disinflationary process is stalling in underlying measures. Key topside risks remain from rise in employer National Insurance Contributions, still strong wage growth and rising inflation expectations. More broadly with UK inflation surprising to the downside the past months we think the BoE is set to continue easing at a quarterly pace, delivering its next 25bp cut at the upcoming meeting in May."

"For EUR/GBP, key remains the global investment environment where elevated volatility and uncertainty and widening credit spreads provide a sour cocktail for GBP. In the very near-term, we have a topside bias for the cross."

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FXStreet Insights Team

FXStreet

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