British Pound: CPI focus supports Sterling against US Dollar – Societe Generale

Societe Generale strategists note that dip buying in Sterling has kept GBP/USD trading above its 200-day moving average near 1.3403, even as Gilts remain under pressure. The pair trades within a 1.3400–1.3500 range, with investors assessing the appointment of new Chancellor John Healey and upcoming UK CPI data, which they expect to show a modest easing in headline and services inflation.

Sterling supported as investors eye CPI

"Dip buying in sterling keeps GBP/USD above the 200dma (1.3403) and halts the rebound in EUR/GBP. UK CPI for June will be published tomorrow. SG economics forecast a dip in headline to 2.7% yoy from 2.8%, below the BoE estimate, and in services to 3.6% from 3.7% but no change in core at 2.6%."

"Wage data was not a market mover for the BoE but the small decrease in private sector pay to 2.9% yoy is welcome and minor relief in the broader debate about inflation and threat of second round effects. The premium of Gilts over Bunds trades close to the highs of the Truss debacle in September 2022 at 140bp."

"Notwithstanding the decline in public borrowing by £4bn between May and June thanks to the fall in debt interest payments, the deficit is running £2.7bn ahead of the OBR forecast for the April to June period because of the overshoot in spending by £3.6bn. Receipts are up 7.2% yoy."

"Though the spread has come from just over 170bp at the end of 2024, there should be scope for further tightening if the new chancellor can navigate public finances to safer waters in the autumn budget. The structurally higher level of inflation in the UK compared to the eurozone is the second if not the most important part of the bond jigsaw. Political stability, a rare commodity since the EU referendum in 2016, could tempt investors to turn more bullish on Gilts provided inflation and levels of government spending can be brought under control. "

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