The faster-than-expected inflation deceleration in the US hit the Pound in some non-Dollar crosses, largely because of the vulnerability of the ultra-hawkish BoE market rate expectations. Such vulnerability of the Pound remains very much present now as markets continue to factor in 130 bps of tightening to a peak in the UK, leaving ample room for dovish repricings. 

This week’s UK CPI print is thus a major risk event for Sterling since signs of deceleration in price pressure would likely nudge the dial in favour of 25 bps over a half-point hike in August. Markets currently price in 45 bps for August, so the downside risks likely exceed the upside for the Pound.