Regardless of weak commodity price developments, UK inflation expectations as measured by 5y forward breakeven rates have been broadly stable of late.
It appears that still constructive domestic growth conditions are compensating for weak oil price’s dampening impact on price developments. As business activity continued to expand at a healthy pace, we expect a trend of improving labour market conditions to stay intact.
Under such conditions investors’ BoE interest rate expectations will remain supported around the current levels to the benefit of the currency.
Accordingly we stay of the view that GBP dips should be bought, in particular against the EUR. We target the cross at 0.74 by the end of March.
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