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Reporting on key macro data at the time of release.
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- Once again, much focus on the higher front-end of the UK Gilt curve and money markets bringing forward pricing for the expected beginning of a tightening cycle from the BoE. Money markets now pricing circa 25bps for December this year, with rates seen reaching 1% by November 2022.
- Despite the move in UK fixed income, GBP is seeing no reprieve, with the currency strictly mid-table against the rest of G10.
- This isn't a new phenomenon, with sell-side commenting on the divergence between FI / FX, with some speculating higher rates in the near-term will crimp a consumer already exposed to high energy and import prices and a greater tax burden in 2022.
- Forward-looking GBP/USD 3m risk reversals capture the date of a possible BoE rate hike and remain heavily in favour of puts over calls, reinforcing the narrative that GBP may not benefit from the imminent beginning of higher rates.
- Chart below shows EUR/GBP failing to keep pace with a widening gap in EZ/UK rate expectations: