The Pound Sterling (GBP) is weaker against the dollar, underperforming most G10 currencies as markets digest mixed UK inflation data and a modest repricing of Bank of England easing expectations, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Pound under pressure despite improved sentiment signals

"The pound is weak, down 0.3% vs. the USD and underperforming all of the G10 currencies with the exception of CHF."

"Domestic risk remains elevated and markets are digesting the mixed CPI release, offering a marginal surprise on headline (3.4% y/y vs. 3.3% exp) and a marginal disappointment on core (3.2% y/y vs. 3.3% exp). The release has delivered a modest softening in BoE rate expectations, repricing some of the easing that had been priced out over the past week or so."

"UK/US spreads remain soft, and—as with EUR—we note a clear divergence between bearish fundamentals (spreads) and bullish sentiment with a notable rise in risk reversals showing a clear moderation in the premium for protection against GBP weakness."