GBP: Hawkish BoE signal and nascent wage inflation to be an added boost – ING

Sandeep Kanihama FXStreet Contributor

Viraj Patel, Foreign Exchange Strategist at ING, explains that one of the channels through which they expect GBP strength to materialise in the event of a positive transition deal outcome is reaffirmed sentiment over BoE policy tightening.

Key Quotes

“Not only would we see greater market conviction over a May rate hike (currently 70% priced in), but the potential for a re-invigorated UK economy in the near-term could also spur talk of a second BoE rate hike in 2018.”

“The case for a steeper UK rate curve next week would find additional support from:

1. A Brexit-contingent hawkish signal at the March BoE policy meeting (Thu). While it may be too early for BoE officials to offer markets a clear signal of intent over a forthcoming rate hike – as they did in September 2017 – we do think the reiteration of a resilient UK economy and concerns over sticky above-target inflation will equate to sufficient enough signal to keep UK rates supported.

2. A series of constructive UK economic data releases - namely core CPI inflation remaining sticky at 2.6% YoY (Tue) and headline wage inflation also showing signs of moving higher (Wed). Feb UK retail sales (Thu) is expected to come in a tad softer - though markets may look through this given the largely weather-related disruptions.”

“If all the cards were to fall perfectly into place for GBP next week - that is the combo of Brexit progress, a status quo hawkish BoE message and constructive UK economic data – we could see a bullish breakout in GBP (especially against a weak USD), and would not rule out a sharp move up towards the year-to-date highs around 1.4250-1.4300 (approx +2.0%).”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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