GBP Up on Vaccine Elation, USD Down on Bond Spread Shrinkage

Note The table above is updated before publication with the latest consensus forecasts. However, the text charts are prepared ahead of time. Therefore there can be discrepancies between the forecasts given in the table above and in the text charts.

Rates as of 0500 GMT

Market Recap

Not the usual pattern on a general riskoff day, after stocks were down unanimously in Europe and the US and are mostly down in Asia this morning, USD and CHF are the biggest losers and NZD and EUR are up. USDCAD barely budged despite lower oil prices.

USD was generally weaker, losing some of the gains that it had made on Wednesday. This was despite the fall in equity markets, which in the nottoodistant past wouldve triggered a safehaven flow into USD. However US bond spreads narrowed as global bond yields resumed climbing and European bond yields rose more than US yields. The move was caused by higher real yields rather than higher inflation expectations as 10year breakeven inflation rates actually fell on the day, both in the US and Europe.

GBP was once again the outperformer in G10, much to my embarrassment and chagrin. I had assumed the disastrous start to Brexit and the emerging vision of Brexit as not just a oneoff event but rather as a neverending series of negotiations and discoveries of baleful unintended and unforeseen consequences would eventually bring the pound down to parity with AUD if not NOK. On the contrary, cable breached Tuesdays high of 1.3952 and moved up to 1.3986…

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