The CPI report for June, released this morning, showed things continue to move slowly on the disinflation front in the UK. Headline, core, and services inflation were all unchanged since May, despite expectations for a marginal slowdown, ING’s FX strategist Francesco Pesole notes.

Pound Sterling is trading on the strong side

“We know that services inflation is what the Bank of England (BoE) is mostly focused on at this stage, and the stabilisation at 5.7% YoY in June does not endorse any additional easing bets ahead of the 1st August meeting.”

“The Pound Sterling is understandably trading on the strong side this morning as markets are scaling back some dovish rerating in the Sonia curve. Now there are -9bp priced in for August versus -12bp prior to the release, and the year-end pricing is for 48bp of rate cuts.” 

“Our economists’ long-standing call has been for the BoE’s easing cycle to start in August, but we admit the chances are somewhat lower after this morning’s CPI report. Markets may also gradually price out an August move in the coming weeks, which would make a potential cut a very negative event for the pound. For now, EUR/GBP long-term bulls like us will be happy to see the pair hang on around 0.8400.”