Anna 
Following a higher-than-expected UK Consumer Price Index (CPI) in December, the Sterling (GBP) has staged a rebound. ING economists delve into the implications for the British currency.
The standout point from the CPI release was the robust 6.4% year-over-year growth in the services sector, surpassing the anticipated 6.1%. This could potentially position the Bank of England (BoE) towards the bottom of the list of central banks considering interest rate cuts in the coming year. However, ING analysts offer a word of caution, pointing out that today’s figures are influenced significantly by factors such as flights, package holidays, and hotels, which the BoE views as potential sources of distorted signals, not indicative of underlying trends.
Despite the positive CPI data, the report suggests that the pound might face challenges in weakening during the anticipated easing cycle in 2024. With the possibility of a return to fiscal stimulus in March, the pound’s resilience could be sustained. Concurrently, ING maintains a bullish stance on EUR/CHF, forecasting a bearish trend for GBP/CHF that might see it returning to the 1.11/1.12 range.
In the near term, ING predicts that EUR/GBP is likely to hover around 0.8550/0.8600. The potential for a stronger USD and a softer risk environment may contribute to pulling GBP/USD back towards the 1.2500 area. The analysis provides insight into the complex dynamics shaping the Sterling’s trajectory amidst economic indicators and global market conditions.
