HYBRIDS: CPI Property (CPIPGR: Hyb Ba3/B+) Exchange Offer Results

• UK CPI data came in ahead of expectations, with tax changes for transport and the timing of Easter driving price gains well ahead of both market and BoE expectations. GBP/USD rallied in response, with the pair hitting a new multi-year high at 1.3469 in response. These gains were short-lived, however, despite a further contraction of rate cut pricing across UK OIS markets.
• We noted yesterday that GBP/USD has struggled to maintain gains above the 1.34 handle on several occasions already this year, as well as in 2024, 2019 and 2020. Spot gains today saw a brief print at 1.3469, but markets have already reversed ~60 pips off the high to contain the overall bullish breakout. The keeps focus on the bearish tweezer candle formation printed on April 28/29, which could mark a near-term top. 1.3342 undercuts as first support, ahead of the more meaningful 50-day EMA at 1.3137. A move through here would challenge the near-term bullish trend narrative.
• NOK is the strongest currency in G10, rallying against all others and pressing EUR/NOK to test 11.50 for a new multi-day low. Meanwhile the USD is backtracking, with the USD Index helping support EUR/USD north of 1.1300 having broken above the handle during Asia-Pac trade.
• No tier one data is set for Wednesday release, and the handful of Fed speakers due are unlikely to rock the boat given the sensitivities around the passage of the US' Big Beautiful Bill, which continues to see several hurdles around SALT allowances.

ERU5 98.375/98.50/98.625/98.75 call condor 4K given at 1.0.

As we have already noted, the SONIA/Euribor December ’25 spread has registered the first close above 200bp since January, with the widening extending further today.

• The next upside level of note is located at the January 14 close (213.5bp).
• While an element of sensitivity to U.S. policy/market moves has factored into the widening, the BoE’s hawkish vote split at its May decision, subsequent hawkish commentary from BoE chief economist Pill and this morning’s UK CPI have provided domestic impulses on the SONIA side.
• Meanwhile, ECBspeak has remained fairly non-committal when it comes to the potential need to cut rates below neutral (base of the rough neutral range located at 1.75%), although some of the traditional hawkish voices within the ECB GC have softened their opposition to the idea of such a move.
• We have also flagged downside risks to the ECB’s June inflation projections, largely stemming from energy price developments, which adds another dovish input into the mix.
• While these risks appear to tilt the risks towards further widening, pricing of further BoE cuts is looking quite shallow at this stage, while ongoing macro volatility and beta to moves in U.S. rates add further layers of complication.

Fig. 1: SONIA/Euribor December ’25 Spread

Source: MNI - Market News/Bloomberg