ING’s Chris Turner highlights that UK rate markets have seen one of the largest repricings from the energy shock, reflecting high UK inflation and a relatively hawkish Bank of England. While not constructive on Sterling overall, ING sees scope for the current EUR/GBP correction to extend toward the 0.8600/0.8615 area, which is expected to provide strong support.

Sterling lifted by aggressive BoE pricing

"As above, the sterling curve has seen one of the biggest repricings relating to this oil shock. That is probably a function of UK inflation already being well above target at 3% and the Bank of England having sufficient hawks to call time on the easing cycle."

"Clearly, the duration of the oil shock is going to have a big bearing on this debate. As to whether gilts come under pressure from government measures to limit the energy shock to consumers, the government has some time."

"Utility bills get priced over a February-May window and the government will be hoping that natural gas and electricity prices have turned lower well before energy caps are set and consumers receive their utility bills in July."

"We are not big fans of sterling, but given that both the eurozone and the UK are hit by the energy shock and that BoE monetary response could be greater, there is outside risk this EUR/GBP correction extends back to the 0.8600/8615 area again – which should prove strong support."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)