GBP: Tentative signs of normality

It looks like the pound has continued to realign with the moves in other European and high-beta currencies, although still displaying residual signs of above-average volatility. If sterling absorbed a large share of the negative news during the post-tax event UK market turmoil, it now appears to be trading a bit too much on the strong side, especially considering that gilt yields and GB credit default swaps remain well above mid-September levels.

Today, markets will keep an eye on the Bank of England Decision Maker Panel survey, which collects inflation expectations from company executives, and on a speech by MPC member Jonathan Haskel.

We mostly see downside risks for cable from current levels, and expect a drop below 1.10 in the near term. In EUR/GBP, 0.8700 may emerge as an increasingly solid floor over the coming weeks.

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