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UK: PINCH Update: The implied probability of a December 2019 bank rate hike has
increased to 85.1% from 58.9% the previous week, despite the bewildering
uncertainty over Brexit. This coincides with the sharp jump in market-based
measures of inflation expectations over the past month, with the 5Y5Y forward
inflation swap trading at 3.69% from a recent low of 3.51% on November 27. The
5-year breakeven has similarly pushed higher, despite the sharp slide in oil
prices. This likely reflects expectations of a post-Brexit sterling correction -
a view that the options market has picked up on, going by the demand for way out
of the money cable puts. Even at the money, 3m cable is now 13 vol.
For the latest PINCH estimates please see:

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