Despite the Bank of England’s surprise dovishness, sharper inflation rises, labour stability post furlough and reduced tensions with the EU are supporting recently vulnerable GBP/USD. Economists at Westpac expect cable to hold above the 1.3250-1.3300 support area.

Hot inflation data from the UK seems to be supporting the British pound

“Firmer UK data has led to an unwinding of much of the moves seen in UK short rates after the BoE’s surprising lack of policy action in October. This week’s October inflation data provided another surprise for markets with a sharper lift in both PPI and CPI than anticipated. Critical will be how consumers react and whether recently disappointing retail sales pick up into the festive season.”

“The UK had been experiencing higher covid cases than Europe, but UK cases appear to have plateaued. At the same time, EU/UK discussions appear to be in a less precarious state. Both factors should allow GBP to carve out support against USD while it pushes into new ranges against EUR.” 

“Though GBP/USD may struggle to regain levels above 1.3550, it should now find solid support in the 1.3250-1.3300 area.”