GBP to remain bullish near term – Danske Bank

EUR/GBP broke firmly below the 0.83 mark during yesterday's session amid higher-than-expected inflation, Danske Bank's FX analyst Mohamad Al-Saraf reports.

Rise in headline inflation is driven by fuel prices

"Headline came in higher than expected at 3.0% (cons: 2.8%, prior: 2.5%), core at 3.7% (cons: 3.7%, prior: 3.2%). Services however was a touch lower than expected, meeting the BoE's expectation of 5.0% (cons: 5.1%, prior: 4.4%)."

"The rise in headline was driven by fuel prices, education (VAT on private school fees), airfares but also stronger food prices. Note, this was the final CPI release ahead of the next BoE meeting on 20 March, where markets price 2bp."

"We see the bar as high for delivering a cut in March, amplified by today's release and expect the next cut in May. We stay bullish on GBP FX and expect a more gradual BoE easing cycle relative to peers to support this view."