Goldman Sachs: GBP Can Outperform On Policy Divergence & Cyclical Tailwinds

In light of UK CPI data for June Goldman Sachs note that “while it is true that inflation slowed from an uncomfortably high pace, both core and especially services inflation remains well above target, even on a sequential basis. We therefore think the UK is still in a different place than its peer group, and the market reaction reflects a belief that the BoE has a relatively dovish reaction function, with limited follow-through from the surprise 50bp hike at the last meeting. We think these concerns will ultimately be misplaced, and think GBP can outperform on a combination of further divergence and cyclical tailwinds, though today’s market response is clearly a setback.”