GBP: Political risk tempers data-driven support – OCBC

OCBC’s Sim Moh Siong argues that sticky UK inflation and firmer activity data have limited dovish repricing of the Bank of England and cushioned the Pound. However, the 26 February by-election is seen keeping GBP volatility elevated in the near term. Siong still expects EUR/GBP to drift lower once political uncertainty fades.

Data resilience versus by election uncertainty

"Sticky inflation and a firmer UK growth pulse helped offset soft labour data, tempering the market’s shift toward a more dovish BoE and limiting GBP downside."

"With the Greater Manchester by-election on 26 February, GBP volatility may remain elevated."

"We continue to see scope for EURGBP to retrace lower once political risks subside."

"The recent improvement in UK growth indicators may have further room to run."

"However, the muted GBP reaction to last week’s stronger data suggests investors may be waiting for political uncertainty around the 26 February by-election to clear before taking more decisive currency positions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)