EUR/GBP likely to continue its uptrend, deviate the 0.91 mark: Commerzbank

The last Bank of England (BoE) inflation report in early August suggests that nothing is going to change about UK interest rates for now. The MPC is likely to have been relieved that overall inflation recently moved further away from the 3 percent mark. In July prices are likely to have remained virtually unchanged.

As long as there is no indication that the share of inflation caused by higher import prices (due to Sterling weakness) will cause inflation to rise permanently and as long as wages don’t rise, the BoE will refrain from raising interest rates. The economic prospects are simply too uncertain against the background of the Brexit negotiations.

So Sterling is unlikely to gain support on this front. During Theresa May’s summer recess things moved behind the scenes as regards Brexit. Chancellor Philip Hammond, who had previously advocated a transitional period, allegedly signed an article with Secretary of State for International Trade Liam Fox, who supports a hard Brexit that demonstrates unity. It would seem that the hardliners want to take control over the “softies”. However, it is clear that not all details can be negotiated in the remaining 18 months until the exit.

"We will get a little more clarity once the negotiations with the EU are resuming at the end of August and when the government publishes several documents detailing its own position on important issues. As it seems unlikely that any positive news on Sterling will emerge until then EUR/GBP is likely to continue its uptrend and will no doubt have another go at the 0.91 mark," Commerzbank commented in its latest research report.

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