Sterling was able to appreciate in a benign market environment yesterday. The BoE expects inflation to ease significantly over the course of the year. However, economists at Commerzbank are not totally convinced by the BoE's line of argument, leaving Sterling vulnerable.

The BoE and its optimistic inflation projections

“Not so long ago the BoE had expected a deep recession that would continue for some time – which was an important reason for its assumption that inflation would fall significantly. It has since revised its economic outlook to the upside, but continues to expect a significant fall in inflation.”

“As we see the risk that inflation might not ease as quickly and that the BoE might drop behind the curve with its monetary policy, we remain sceptical regarding Sterling and expect weaker GBP levels over the coming months.”