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Rabobank's Senior FX Strategist Jane Foley highlights that while the British pound has shown recent resilience, underlying risks to the UK economy remain high. A potential energy shock could push UK inflation (CPI) up by 65 basis points by mid-year, constraining the Bank of England's (BoE) ability to ease monetary policy. This scenario would delay interest rate cuts and weigh on the pound's recovery trajectory. Energy prices are a critical factor, as rising costs could exacerbate inflationary pressures and strain household budgets, further complicating the BoE's policy decisions. For traders, the focus will be on energy market volatility and BoE's response to inflation data. The GBP/USD pair is likely to remain under pressure unless there's a significant shift in energy prices or a faster-than-expected easing cycle from the BoE. Investors should monitor upcoming CPI reports and BoE minutes for clues on policy direction. The broader implications for forex markets include potential spillovers to other G10 currencies, particularly if energy-driven inflation becomes a global concern.
