British Pound: Data mix limits sustained gains against US Dollar – BBH

Brown Brothers Harriman's Elias Haddad suggests that improving UK disinflation and solid Q2 GDP growth may bolster the British Pound (GBP) against the US Dollar (USD) and Euro (EUR), but expects limited potential for a prolonged rally. Markets could lower Bank of England (BoE) rate hike expectations due to ample spare capacity in the UK economy, which could dampen a sustained GBP surge.

Upcoming UK labor, Consumer Price Index (CPI), and retail sales data are anticipated to align with BoE projections, potentially supporting the growth-inflation mix and GBP compared to USD and EUR. However, the substantial spare capacity in the UK economy leaves room for markets to revise BoE rate hike forecasts (60 basis points in the next 12 months) and suggests that a lasting GBP rally is unlikely.