The better Dollar/softer risk environment can drag GBP/USD back to the 1.2500 area – ING

The Pound Sterling (GBP) is enjoying a bounce after the December UK Consumer Price Index (CPI) figure came in higher than expected. Economists at ING analyze Cable’s outlook.

EUR/GBP can probably trade closer to 0.8550/0.8600

In focus was the services reading at 6.4% year-on-year versus 6.1% expected. In theory, this could see the Bank of England towards the back of the pack of the central banks looking to cut this year. However, we warn that airfares and package holidays/hotels have been a big driver of today's number – factors the BoE thinks 'may not provide a good signal of underlying trends'.

Given the prospect of renewed fiscal stimulus in March, however, it may be hard to position for a weaker pound on the 2024 BoE easing cycle. Combined with our bullish EUR/CHF view, GBP/CHF (carry positive) could be embarking on a recovery to the 1.11/1.12 area. 

For the time being, EUR/GBP can probably trade closer to 0.8550/0.8600 and it looks like the better Dollar/softer risk environment can drag GBP/USD back to the 1.2500 area.