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Investing.com -- The Bank of England is likely to maintain its "gradual and careful" guidance while potentially removing hawkish caveats in response to recent UK economic weakness, according to Citi’s analysis of UK economic data.
Citi views such a development as marginally dovish and continues to maintain a long position in EUR/GBP, which was trading at 0.8547 as of 2:21 p.m. ET. The bank suggests the upcoming May CPI data release on June 18 could be more significant for currency markets, with expectations for core inflation at 3.5% year-over-year and services inflation at 4.8%.
The British pound’s recent weakness follows a build-up of long positions that began in early May, which Citi notes are now "completely underwater" against the euro, though GBP/USD remains elevated. While some position unwinding has begun, Citi believes more adjustments are coming and expects upcoming catalysts to be "marginally negative" for the pound.
Citi analysts are watching next month’s data to determine whether the UK is experiencing the beginning of a broader economic deterioration or merely a temporary fluctuation. The bank leans toward the former view, citing concerning developments in the UK labor market as evidence.
Fiscal concerns and budget tightening represent additional headwinds for the pound, according to Citi’s analysis, potentially contributing to further weakness in the British currency.
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