GBP: GBP/USD Puts Pair at Most Overbought in Over Two Years
- The winning streak in GBP/USD extends to six consecutive sessions, with spot convincingly clearing 1.30 to put prices at the best levels since April last year - opening next levels of resistance at the Apr21 high of 1.3090 and the 1.00 projection of the May 25 - Jun 16 - Jun 29 price swing.
- On a technical basis, the GBP/USD run higher is now comfortably overbought. The 14d RSI has been boosted to 75, making the pair the most overbought since Feb'21 - where GBP/USD underwent a sharp rally from ~1.37 to ~1.42 - as the currency benefited from fading expectations of BoE NIRP as well as government planning for an end to COVID lockdowns. Back then, the subsequent unwind of the overbought condition saw the pair shed 4% over the next calendar month.
- A similar response this cycle would see the pair return to test support at the 50-dma of 1.2609 - a move that would likely have to be predicated by a significant downward repricing of Bank of England rate hike expectations - the peak rate remains above 6.00% in OIS terms, although has moderated considerably (over 50bps) off the cycle highs pre-nonfarm payrolls last week.
- This week's spot rally has forced markets to significantly mark up the implied odds of further GBP/USD strength into year-end. Options markets now imply a 25.6% chance of spot above 1.35 by year-end (and 8.3% above 1.40), up from 13.2% and 3.9% this time last week.
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BOE: Wage Data Set To Factor Into Bank’s “Rough & Hard-To-Quantify” Inflation Projections
In the wake of today’s much firmer than expected labour market data (punctuated by strong wages readings) and ahead of today’s BoE speak (consisting of scheduled comments from Governor Bailey, Dhingra & Greene) we point you towards our policy teams’ latest insight piece, which was run yesterday and noted that “the failure of the Bank of England’s standard model to predict the recent upsurge in prices has left policymakers applying a rough and hard-to-quantify upside skew to projections for inflation as they hike rates whilst Bank staff struggle to incorporate a new wave of modelling and research into their projections.”
- A quick reminder that yesterday’s typically hawkish musings from BoE’s Mann highlighted her “very significant” concerns re: sticky core inflation, while fellow MPC member Haskel noted that his bias is to “continue to lean against the risks of inflation momentum.”
- The BoE-dated OIS strip now prices just over 120bp of further BoE tightening through year end, although terminal rate pricing remains well shy of the post-mini-Budget cycle highs (which were above 6.00%).
FINLAND AUCTION PREVIEW: RFGBs on Offer
On offer today:
- E1.0bln of the 3.00% Sep-33 RFGB (ISIN: FI4000550249)
- E0.5bln of the 0.125% Apr-36 RFGB (ISIN: FI4000415153)
Timing: Results will be available shortly after the auction closes at 1100 BST / 1200 CEST.
See PDF for full auction preview:
SPAIN T-BILL AUCTION RESULTS: 3/9-month letras
| Type | 3-month letras | 9-month letras |
| Maturity | Sep 8, 2023 | Mar 8, 2024 |
| Amount | E530mln | E1.54bln |
| Target | E1.5-2.5bln | Shared |
| Previous | E401mln | E1.596bln |
| Avg yield | 3.255% | 3.462% |
| Previous | 3.061% | 3.212% |
| Bid-to-cover | 3.99x | 2.10x |
| Previous | 4.75x | 2.70x |
| Previous date | May 16, 2023 | May 16, 2023 |
