Further correction potential towards a weaker GBP – Commerzbank

The latest UK CPI print saw its biggest downside surprise in almost two years. Economists at Commerzbank analyze GBP following inflation data.

UK inflation surprise is putting pressure on Sterling

British consumer prices rose much less quickly in June than expected. The resulting strong market reaction confirms our expectation that the rate expectations priced in by the market do not justify sustainable GBP strength.

Instead, we assume that the Bank of England will only tighten its monetary policy as far as necessary to control inflation expectations. The downside correction of the rate expectations following Wednesday’s inflation data is therefore not far reaching enough for us, and we see further correction potential towards a weaker GBP.