UBS Morning Adviser

For sterling, it appears that Wednesday’s inflation report could only offer surprises to the upside. The ongoing data surge is becoming rather difficult to ignore and any minor hints at an adjustment to forward guidance would be enough to encourage the currency to rebound. Even if the BoE stands still, given the broader direction most other central banks are headed, GBP will likely remain resilient in the shortterm.

The exception of course remains GBPUSD, where the market appears to be moving, albeit grudgingly, towards an early Q1 Fed taper. As such, we remain wary of playing GBP strength or any ‘BoE corrections’ on this leg. EURGBP will continue to shoulder the burden of adjustment, and as the cross comprises the bulk of the currency’s NEER basket the BoE will unlikely object.