GILT AUCTION PREVIEW: On offer next week

• +12,500 TYM5 110.5/111.5 2x1 put spds, 1 net vs 111-17.5/0.10%

GBP strength Monday has prompted EUR/GBP to trade through a major support area we flagged last week at 0.8520-31 - marking both the early April pullback low as well as the 50% retracement of the tariff-inspired upleg off 0.8323.

• GBP outperformance over the EUR over the past two weeks will partly be a mean reversion effect, but could be as markets see greater near-term potential for a US-UK trade settlement over a US-EU agreement inside the 90-day tariff pause window (after which Trump has said the stricter levies - 20% for the EU - will return).
• On the surface, a UK/US trade settlement seems simpler - despite Reeves' claim the UK are "not going to rush into a deal". Food standards are the main sticking point, but with the UK publicly willing to lower levies on UK-bound cars, a compromise seems politically straightforward relative to the higher number of moving parts for an EU agreement.
• Less noted, however, is the UK's decision not to follow the EU in raising tariffs against Chinese electric car imports, which could become a bargaining chip as Washington look to freeze Chinese industry from global markets - and restrict the UK's ability to enjoy easy relations with all parties.
• These trade prospects could provide a quick win for GBP, and markets may be seeing some of this strength play out against the rest of G10 - however the implications for BoE policy are likely minimal, and should keep BoE on track for 3x25bps cuts this year: Bailey specified last week that even preferential treatment on tariffs wouldn't spare the UK economy - while Greene stated it was the April pay settlement round that will be key for policy.

• A few low prints for the EUR, against the JPY, GBP and the SEK.
• The EURJPY tested its highest level since the beginning of April on Friday, this was a 163 pips gain, but the cross is now looking at fully reversing that move.
• Friday's low is at 162.13, it is now exchanging hands at 162.57.