Brown Brothers Harriman highlights GBP/USD trading around its 200-day moving average as UK Gilts outperform European bonds. With softer UK May CPI delaying Bank of England tightening expectations to December, Elias Haddad expects GBP/USD to drift lower and stabilize closer to 1.3100, reflecting relatively stronger US growth prospects and ongoing uncertainty in the UK political landscape.

Soft UK CPI delays BOE tightening

"GBP/USD is directionless around its 200-day moving average (1.3417), while gilts are outperforming European bonds. UK May CPI was soft and suggests the Bank of England (BOE) will not be in a rush to tighten policy. Headline CPI unexpectedly remained at 2.8% y/y (consensus: 3.0%, BOE projection: 3.3%) for a second straight month while core CPI rose less than expected to 2.6% y/y (consensus: 2.7%) vs. 2.5% in April."

"The swaps curve pushed out the pricing of a first full 25bps BOE rate rise to December from November. We expect GBP/USD to edge lower and stabilize closer to 1.3100, reflecting a stronger US growth outlook relative to the UK and the murky UK political backdrop."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)