GBP: BoE Holds Steady, Carry Appeal Keeps Sterling Resilient – ING

ING analyst Chris Turner, citing the firm's UK economist James Smith, noted that the July UK CPI data had limited impact on EUR/GBP, with food inflation remaining moderate. The core services indicator, which the Bank of England focuses on, only edged up to 3.8%, insufficient to alter the monetary policy wait-and-see stance.

**Inflation Data Does Not Change Policy Wait-and-See Stance**

Looking at the data details, core services inflation ticked up slightly but remains within a manageable range, while food price pressures are easing. The overall inflation structure shows no signals that would force the Bank of England to adjust its position. The market broadly expects the BoE to remain on hold in the near term, and unchanged interest rates mean sterling retains a carry advantage over other low-yielding currencies, providing important support for the currency's resilience.

**Carry Logic Supports Currency Resilience**

Against a backdrop where major central banks have generally entered a wait-and-see phase, sterling attracts carry inflows thanks to its relatively higher interest rate levels. EUR/GBP was trading around 0.85611, with limited overall volatility, reflecting that the market has largely priced in the BoE's policy path. ING believes that as long as the BoE does not signal a shift, sterling's carry appeal will be difficult to fundamentally undermine.

**Watch Policy and Political Risks Ahead**

However, ING also cautioned that sterling still faces uncertainties on both policy and political fronts, including potential disruptions from the BoE's subsequent communications and domestic political events. If future data or political factors change market expectations for the BoE's rate path, the support that carry logic provides to sterling could shift accordingly. Overall, sterling's current resilience stems more from interest rate differential advantages than from a broad-based fundamental improvement.