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Prospects for the British Pound improve – MUFG

GBP/USD advanced above 1.2700 for the first time in three weeks on Thursday. MUFG Bank economists analyze the outlook for the British Pound (GBP).

The rebound in global risk sentiment will allow the BoE to remain patient

UK data on Thursday was indicative of an improving outlook and the technical recession that took place in the second half of last year looks likely to be over.

The rebound in global risk sentiment will undoubtedly allow the BoE to remain patient, like other central banks. But good news keeps coming and the prospect of inflation reaching the 2% target in April remains plausible. If the Fed and ECB are delaying the date of the first rate cut, the BoE will too. In the UK, the first cut is fully planned for August.

Better UK data and strong risk appetite should benefit the Pound more than we are seeing to date. However, growth concerns appear to persist and could hold back GBP.

GBP's correlation with global equities has started to weaken, but remains stronger than the USD/risk correlation and could lead to some strengthening in GBP if this risk appetite persists.

Source: Fx Street

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