EUR/GBP drop delayed – ING

April’s rise in UK services inflation was mostly down to a temporary spike in air fares and package holidays caused by the timing of Easter—an effect that should unwind soon, ING’s FX analyst Francesco Pesole notes.

EUR/GBP can below 0.840 in the near term

“Other key areas like restaurants, medical care, and rents are showing signs of disinflation. While rent is still propping up the overall figure, its impact is set to shrink next year. Our view is that services inflation will fall further this summer, and while levels remain high for the Bank of England, an August rate cut still looks on the cards.”

“Markets have scaled back easing bets only modestly, and an August move is still just about 50% priced in. As a consequence, there hasn’t been much support for the pound coming from the CPI release, and EUR/GBP is likely finding support from market instability borrowed from the US.”

“We still like the chances of EUR/GBP below 0.840, although calmer asset markets are likely a necessary condition.”