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Goldman: Peak Policy Uncertainty

GBP

Goldman Sachs note that “recent GBP price action has been striking partly for its resemblance to some emerging markets - higher inflation, higher rates, and a falling currency. We see this as consistent with the relatively more ‘hands-off’ approach from UK policymakers on both the monetary and fiscal side to the cost-of-living crisis. However, that could soon change given the upcoming change in government, as well as evidence that higher inflation expectations could be becoming more entrenched, which might prompt a more forceful response from the BoE. Our baseline assumption is therefore that the most rapid phase of GBP underperformance is now behind us, and look for some retracement in EUR/GBP. However, this implicitly assumes that a change in the policy approach is coming; if the upcoming announcements fail to impress, then we would look for the recent trend to continue.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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