EUROPEAN INFLATION: Final German June Data Confirms Soft Services [1/2]

GBP/USD's post-data sell-off is holding, but the sustainability of a corrective phase lower will hinge on conviction in BoE pricing and a nascent downtrendline in the USD Index. 

• Weakness in GBP came in two phases this morning, first on the soft payrolls data, and then again on the SONIA open, with GBPUSD nearing 1.3462, its 20-day EMA. A clear break of this average would suggest potential for a deeper correction and expose the 50-day EMA for direction, at 1.3299. EURGBP meanwhile has cleared 0.8440, its 50-day EMA and key resistance, exposing 0.8541, the May 2 high.
• The sustainability of the move hinges in the short-term on BoE pricing: we note that OIS markets are returning closer to a further 2 x 25bps rate cuts this year: 46bp of cuts priced through December, with the next 25bp step almost fully priced at the September MPC.
• Should this pricing stick (or extend), the USD Index will come into sharper focus, with today's USD relief rally prompting the DXY to narrow the gap with a key downtrendline drawn off the early February highs - today at 99.575, a level across which markets were rangebound in the aftermath of Trump's Liberation Day announcement. This level could prove key into the US CPI print tomorrow. 

Figure 1: Sustainability of GBP/USD Dip Could Hinge on USD Index Downtrendline

Source: Bloomberg Finance L.P. / MNI

• Guidance: 1.125% Nov-37 I/L gilt +11.75/+12.25bps
• Size: GBP Benchmark (MNI expected GBP3.5-5.0bln nominal with risks skewed to smaller)
• Maturity: 22-Sep-38
• Exp. Settlement: 11-Jun-25 (T+1)
• Coupon: 1.75% SA, ACT/ACT, short first to 22-Sep-25
• ISIN: GB00BMY62Z61
• Joint Leads: Barclays (B&D/DM), Citi, Nomura, RBC
• Timing: Books open, today’s business

ERH6 98.50/98.25/97.75p fly bought 2.75 in 5k.