GBP flows: GBP gains after stronger than expected CPI numbers
EUR/GBP edged below 0.86 as CPI comes in above expectations, but downside scope for EUR/GBP remains quite limited
GBP has made modest gains on the stronger than expected UK CPI data. All the main indices were slightly above expectations, but y/y core CPI was unchanged from November at 5.1% and headline up only 0.1% to 4.0% y/y. Still, it’s the first rise in the y/y rate since February, and will support the hawkish case at the BoE.
Even so, there isn’t a lot of scope for UK short term yields to rise, as the UK money market already discounts much less easing than we see in the US and Eurozone curves. And EUR/GBP is already trading some way below the level that would be expected based on the correlation with short term yield spreads that has guided it through most of the last year. So while we are likely to see a little progress below 0.86 in the immediate aftermath of the data, we doubt that 0.8550 will be threatened.
