GBP/USD: Dollar strength to push Cable to 1.23 into year-end – Rabobank

GBP lurched lower in the immediate aftermath of the UK CPI data. Economists at Rabobank analyze Sterling’s outlook ahead of the Bank of England’s Interest Rate Decision on Thursday.

A less bad growth outlook for the UK could allow GBP a slight advantage vs. the EUR

On the back of the much softer-than-expected print for UK August CPI inflation, the market is pricing in a significantly lower chance of a BoE rate hike. It remains our house view that a rate hike is likely, though certainly the odds that a pause will follow have risen.

However, on the view that the BoE may need to hike less than had been expected, the chances that the BoE will push the UK economy into recession have also dropped. Relief that the UK growth outlook may be a little better than it could have been, should allow GBP a little support. 

Although we still expect USD strength to push Cable to 1.23 into year-end, a less bad growth outlook for the UK could allow GBP a slight advantage vs. the EUR in the months ahead.