GBP/USD: Hot inflation data fuel BoE rate hike expectations, sterling underpinned into year-end – OCBC

GBP/USD is trading near 1.38 as the cable has not reacted higher following high UK inflation data. Strong CPI data has reinforced hawkish Bank of England’s rhetoric and added to implied probabilities for rate hikes. Should these expectations continue to be entrenched, the GBP/USD downside should be limited going forward, according to economists at OCBC Bank.

Higher inflation raises the chances that the BoE raises rates earlier than previously anticipated

“August inflation prints ran hotter than expected on Wed, adding fuel to the already higher BoE Feb 2022 rate hike expectations.”

“The lift-off rate hike is fully priced by May 2022, and another by end-2022. Should these expectations crystallise into the base case, the GBP may turn supported into the year-end.”