The ongoing divergence between the UK's weak economic outlook and the Eurozone's performance, potential political stability from a Labour government, and unexpected May GDP growth support the GBP. BoE Chief Economist Pill's emphasis on inflation persistence and high service inflation reduces easing bets before August. Upcoming July PMIs will be critical for assessing economic resilience. Meanwhile, the recent JPY rebound and minimal SNB intervention despite easing rates to counter CHF strength suggest potential CHF depreciation. Softer Swiss CPI and declining PMI input prices indicate possible further weakening, especially if global risk sentiment improves.

GBP: Stay long just a little bit long

The GBP may continue to gain from the ongoing divergence between the UK's weak economic outlook and the Eurozone's performance. Additionally, if a majority Labour government restores political stability and adopts a policy of gradual rapprochement with the EU, the UK economy could benefit further. Domestic factors have also slightly supported the GBP, with stronger-than-expected May GDP growth and BoE Chief Economist Pill's emphasis on inflation persistence in his recent comments. The June CPI data showed that services inflation remains high and sticky, with stabilization at 5.7% y/y, which does not support further easing bets before the August 1st meeting. This week's attention will be on the July UK PMIs. FX investors will be particularly interested in evidence that the UK's economic recovery has continued or even accelerated at the start of Q3. Although not central to the MPC's rate outlook, persistent economic resilience may be needed to convince policymakers to postpone any easing beyond August.

Current probability of Bank of England cut on August 2024

Retail Sentiment: 25% short, 75% Long

GBP Seasonality Movement

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