UK CPI reinforces EUR/GBP downside but changes little for BoE
Nov 20 (Reuters) -Higher than expected UK CPI figures have added very little to the rate cut debate for the Bank of England. The closely watched services CPI rose to 5% from 4.9%, matching the BoE's projections.
In turn, the change in market pricing has been minimal, which continues to support UK policymakers' gradual approach to policy easing, in other words delivering quarterly cuts.
As it stands, the markets base case is for the next BoE cut to occur at the February meeting, currently priced at 67%, with a follow-up cut in May at 56%.
For GBP, it does reinforce the view that it should perform well against currencies backed by comparatively more dovish central banks, namely the ECB and euro. That said, EUR/GBP downside has been very much a slow grind. While rebounds have faded in relatively short order, the pullbacks have generally petered out around the low 0.83s, which also corresponds to GBP/EUR at 1.20.
Though there is room for an eventual move to 0.82 in EUR/GBP, the bias remains to lean against rallies above 0.84. Looking ahead, the upcoming flash PMIs (Nov 22) are the key risk event for the cross.
For more click on FXBUZ
UK services CPI https://tmsnrt.rs/490qHwP
BoE outlook https://tmsnrt.rs/4i0do3A
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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