British Pound: Carry appeal keeps Sterling resilient as BoE stays on hold – ING

ING’s Chris Turner, citing UK economist James Smith, notes that July United Kingdom (UK) Consumer Price Index (CPI) had limited impact on EUR/GBP, with benign food inflation and only a modest uptick in the Bank of England’s core services measure to 3.8%. ING’s call is that the BoE does not need further hikes, though this may not weigh on Sterling until later in the year. In a low-volatility environment, Sterling still benefits from strong carry appeal, and EUR/GBP is expected to hover around 0.8550.

Carry appeal helps limit Sterling downside

"EUR/GBP has barely budged on today's release of the UK July CPI data. The rise in headline inflation was widely expected, though food inflation – which the Bank of England tracks closely – remains quite benign. "

"ING's UK economist, James Smith, notes that the BoE's core services measure of inflation has picked up a little to 3.8% year-on-year, but probably not enough to trouble the Bank."

"Our call is that the BoE does not need to hike again, but that the realisation of that may not weigh on sterling until later in the year."

"In a low volatility environment, sterling is probably still enjoying some carry demand given it is one of the highest, volatility-adjusted currencies in G10. EUR/GBP can probably hang around these 0.8550 levels for the time being."