- The UK government's decision to power through the Omicron surge with relatively few restrictions seems to have been rewarded by investors. Here the rationale seems to be that an open economy and continued high energy prices will keep the risk of a further BoE tightening in February in play.
- Remember that UK inflation may not peak until the 6% area in April – compared to Eurozone inflation which may be peaking around now as German VAT adjustments fall out in the base effects
- We had never really backed the idea of a policy error hitting GBP last year and feel that we have a window – probably in 1H22 – for EUR/GBP to test the 0.8275/85 early 20 lows and potentially trade closer to 0.8200
Just looking at the chart without considering anything else if it hits 0.82 it looks vulnerable to a bigger drop - comments welcome: