Increased long positioning following the UK general election has slowed GBP gains of late. Combined with another unanimous set of MPC minutes maintaining the policy status quo, the currency may struggle to find further short-term fuel.
Notwithstanding this, the balance of GBP risks this week should remain biased to the upside. Maintaining this upside bias, while core inflation is expected to stabilise at 1.0% YoY (0.5% MoM), traders might still react positively to a stronger headline print, lifting the GBP.
Moreover, while likely already in the price, an April retail sales rebound following the dip in March would at least confirm the consumer-spending-led recovery remains on track.
In summary, while this week’s GBP price action should be largely sideways, ample evidence points to further outperformance in coming months.
Accordingly, we remain of the view that GBP dips should be bought.
In terms of data, today’s main focus will be on the UK CPI. Although the risk of inflation disappointing cannot be excluded, we do not expect such an outcome to have any meaningful currency impact. This is especially true as the BoE has already indicated that price developments may slow further in the short term before stabilising towards the end of the year.
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