EURIBOR OPTIONS: ERQ5 98.12/98.18/98.25 Call Fly Lifted

 Gilts under pressure as the German curve bear steepens.

• Futures stick within yesterday’s range, last -33 at 92.78 (trading 92.64-93.21 today).
• Bulls remain in technical control.
• Key short-term support defined at the Jun 16 low (92.23).
• The bull trigger & June 13 high (93.68) presents the major area of upside interest.
• Yields little changed to 5bp higher, curve steeper.
• 2s10s and 5s30s held above 60bp & 120bp in respective closing terms on Monday.
• Lower oil prices (linked to the already breached Iranian-Israeli ceasefire & lack of meaningful Iranian reaction to the U.S. bombing of its nuclear facilities) anchor the front end.
• BoE-dated OIS across ’25 meetings 0.5-1.5bp more dovish on the day, showing 19.5bp of easing for August (our base case is for a cut), 25.5bp through September, 42.5bp through November and 50bp through year-end.
• SONIA futures +2.0 to -4.0, twist steepening given cues from further out the curve.
• We think that comments from BoE’s Greene suggest that she is probably on board with another cut in August but she doesn't think that uncertainty will recede anytime soon {potentially raising the bar when it comes to her supporting sequential cuts).
• Comments from BoE’s Bailey, Ramsden, Pill & Breeden due through the remainder of the day (the latter 2 may not touch on monetary policy).

• "The labour market has eased roughly in line with our expectations. A margin of slack seems to have opened up"
• "I place more weight on our own estimate of underlying employment growth, which points to stagnation in hiring rather than contraction" [rather than the ONS payrolls numbers].
• "The corresponding picture on pay is somewhat more nuanced: so far pay settlements have come in between 3-4%, in line with the steer we are taking from the Agents’ pay survey and the Decision Maker Panel (DMP) for 2025. Overall, I think the evidence points to a slowly softening labour market rather than one that is sharply deteriorating."

• Renewed pessimism for the dollar and firmer risk sentiment is assisting the impressive recovery for GBPUSD this morning, with the pair now 1.8% above yesterday’s lows and tracking back above the 1.36 handle. GBP tracks as the third best performer across G10, only outdone by AUD and NZD.
• Monday’s 1.3371 low for cable matched the 50-day EMA support perfectly, and today’s recovery keeps the trend needle pointing firmly north. Price action sees spot narrow the gap to key resistance and the bull trigger, which has been defined at 1.3632, the Jun 13 high.
• Clearance of this hurdle would resume the primary uptrend, signalling scope for a move towards 1.3681 and 1.3757, both projection levels of the Feb 28 - Apr 3 - 7 price swing.
• Amid a light data calendar this week, global risk drivers and MPC speakers will remain the focus for GBPUSD, potentially shedding more light on the MPC's thinking following the June meeting and on recent labour market developments.

Source: Bloomberg Finance L.P. / MNI