GBP upside potential should be limited
The official labour market data by the Office for National Statistics will be published on Tuesday. It is questionable though whether that really will provide more clarity. That means the BoE will continue to worry about a wage-price spiral and will probably continue to see the need for rate hikes. That is likely to support Sterling for now, but the upside potential should be limited now as rate expectations have already gone a long way.
We consider it to be less likely that the BoE will hike interest rates until year-end as we assume that inflation rates will ease more notably over the coming months and that this will provide the BoE with scope to end the rate hike cycle already at an earlier point. That means the market will have to lower its expectations regarding the BoE at which point Sterling will come under depreciation pressure.
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