The sterling market is awaiting inflation data tomorrow that could signal the BOE will need to push ahead with its suggestion to raise rates faster. But even an upside surprise will probably fail to dislodge entrenched, longer-term GPB bearishness.
While the forecast is for a slowdown, there's a chance of an increase in the headline number for January given the rise in oil prices. That's reflected in markets, with the 5y5y forward RPI swap up and not far off the one-year high reached last month. An uptick would give sterling at least a brief boost.
Despite hawkish BOE rhetoric last week, the one-year cost of hedging against further declines in the pound against the euro has surged to the highest since November 2016. The market doesn't seem convinced by the central bank's hawkish tilt, as my fellow blogger Richard Jones pointed out earlier. The biggest moving part for sterling remains the Brexit outcome.
Source: Bloomberg Pro Terminal
Jr Trader Alexander Kumanov
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