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Investing.com -- The British pound may face downward pressure against the euro in the coming weeks, according to ING’s economics team, which anticipates U.K. services inflation to come in below expectations.
ING expects Wednesday’s U.K. services inflation to come in at 4.6%, undershooting both the Bank of England’s forecast and the 4.8% market consensus.
Meanwhile, Morgan Stanley projects UK CPI inflation to rise 3.9% year-on-year in September, also below the central bank’s projection. The investment bank noted that the expected uptick in headline inflation is primarily driven by fuel-related base effects.
This lower-than-expected inflation figure could push the GBP swap curve in a more dovish direction and potentially weigh on the pound this week.
ING also notes that information about the November budget will likely emerge steadily in the coming weeks, presenting what they describe as a "double-edged sword" for sterling.
Any concerns regarding fiscal sustainability could negatively impact back-end gilts and affect the pound, while higher taxation measures might slow economic growth and increase the likelihood of earlier monetary policy easing from the Bank of England.
ING maintains a bullish outlook on the EUR/GBP pair, seeing risks tilted toward the 0.88 level as the November budget event approaches.