A bullish GBP view has been among Credit Suisse’s most consistent positions of 2023 so far. More gains are likely.

EUR/GBP to target 0.8450

Looking ahead, the biggest questions are: 1) can UK core inflation fall quickly given the tightness in the UK labour market and 2) is the UK housing market so fragile as to make it impossible for the BoE to hike as much as priced in and/or hold rates at a high level for a meaningful period of time?

We take the view that, if the ECB is worried about wage-price spiral risks in the Euro-area, the far-graver situation confronting the BoE in the UK should be defined as a genuine emergency that precludes excessive concern about the health of the UK housing market. 

While GBP has clearly appreciated a great deal already in 2023, we see room for further gains, with EUR/GBP having scope to push to at least 0.8450 while GBP/USD can test 1.3000 too. 

The main risk to our view is a sudden freeze/collapse in UK asset markets.