MONTH-END FX: Most Models Point to USD Demand for Month-, Quarter-End

Tariff worry underpins gilts on the day, as markets look to the potential growth hit as opposed to the inflation shock.

• Futures have broken above the 50-day EMA to trade as high as 92.97.
• A fresh extension higher would expose the Feb 13 high (93.50) and reintroduce some momentum to the bullish technical cycle.
• Yields 3-4bp lower, light bull steepening on the curve.
• 2s10s ~0.5bp below the mid-Feb cycle closing high.
• 5s30s ~1bp blow ‘25/cycle closing highs, last ~92.5bp.
• GBP1.6bln of Sep-35 I/L supply passed smoothly, with the average price comfortably above pre-auction mids and cover ratio topping 3.50x.
• GBP STIRs move in a dovish manner in sympathy with wider core global FI.
• BoE-dated OIS shows ~56bp of cuts through year-end vs. ~52bp late yesterday, moving back to levels seen as recently as last Tuesday.
• SONIA futures flat to +4.5, with bulls threatening to push several contracts cleanly through last week’s highs.
• This afternoon will bring comments from BoE chief economist Pill, as he delivers closing remarks at the Bank’s BEAR conference.
• MPC dove Dhingra reasserted her dovish views late on Monday, with a focus on consumption worries.
• A reminder that we have suggested that Friday’s address from Deputy Governor Ramsden could provide the most interesting round of BoE communique this week.

• Markets trade with a general risk-off feel, after the European open ushered in a phase of stock weakness, USD buying and a pullback in US yields as traders responded to reports that Trump is set to expand and extend restrictions on chip trade with China. Importantly, the Trump administration have reached out to their Dutch and Japanese counterparts to cooperate in the sector - reinforcing the potential impact of any levies.
• The single currency looked through the release of the ECB's negotiated wages tracker, which came and went with little market ripple - the numbers are unlikely to be a needle mover for the ECB, but the data does underscore the ECB's confidence in the inflation outlook, with services expected to start seeing more meaningful disinflation below 4% in the next few months.
• The USD remains among the strongest performers in G10 headed into the crossover, but is off the session's best levels. AUD and NZD remain the hardest hit - as growth sensitive currencies fade a recent rally as the proximity to potential Canadian/Mexican tariffs next week come nearer.
• Consumer confidence data for February is the highlight of the US schedule, with Richmond Fed Manufacturing and Philadelphia Fed non-manufacturing also set to follow. The central bank speaker schedule sees ECB's Centeno & Schnabel, BoE's Pill and Fed's Barr & Barkin.