EURIBOR OPTIONS: Ratio Put Fly

• Following Liberation Day, GBP was a standout underperformer, as the UK economy signaled unique exposure to Trump's tariffs given the government's leniency toward countermeasures. The opposite is now true: with reciprocal tariffs delayed, GBP is now rallying well - underscoring GBP's correlation with risk - which looks through only marginal tweaks to monetary policy pricing.
• GBP strength today is accompanied by a further rally in the FTSE-100 (now ~7.5% off lows, but still ~9% off highs), despite the often observed inverse correlation between the two - which serves as a further signal that tariff reprieve and risk-on is the primary driver of this move, rather than a reorientation of BoE pricing for 2025.
• This makes EUR/GBP a key cross ahead. EUR's status as a quasi-safe haven through US-triggered volatility has seen the price hit near 18-month highs and the most technically overbought since 2022. As such, the cross could be subject to a sharper reversal should market jitters around tariffs further recede.
• Technically, moving average studies remain in a bull mode position that highlights a dominant uptrend. An extension higher would open key resistance and the bull trigger is 1.3207, the Apr 3 high.

• Gilt futures are +40 ticks at 91.04, down from an opening high of 91.24 but nonetheless consolidating the rally into Friday’s close. Zooming out though, the contract remains almost 350 ticks below the April 7 high of 94.50.
• Initial support in Gilts is Friday’s low at 90.47, clearance of which would expose the April 9 low at 89.99. Initial resistance is at 91.84, the 20-day EMA.
• Yields are 1.5-6bps lower on the session, with 30s (last week’s notably underperformer) leading.
• Increased correlation to risk assets appears to have reduced the hedging appeal of gilts, while the UK's fiscal fragility and instances of limited liquidity further out the curve point to continued headwinds for UK paper in the near-term.
• SONIA futures are -0.5 to +4.0 ticks through the blues, twist flattening.
• A 25bp BOE cut remains essentially fully priced through May, with 76bps of easing priced through year-end.
• Over the weekend BOE’s Greene provided the familiar view that US tariffs “will impact the economy” but have an “ambiguous” impact on inflation. This broadly echoes remarks from Lombardelli and Breeden last week.
• Meanwhile, Chancellor Reeves said the UK had suspended import tariffs on 89 products, and increased financing support available to exporters via UKEF to GBP80bln from GBP60bln prior.
• Labour market (Tues) and inflation (Weds) data are due this week. MNI’s preview will be out later today. 

 A 25bp ECB cut on Thursday remains over 90% implied in ECB-dated OIS, with implied rates through the remainder of this year little changed from Friday’s close. There are 78bps of cuts priced through December, consistent with 3x25bp cuts in total. 

• Euribor futures are -2.0 to +0.5 ticks through the blues, twist flattening slightly. Z5 is -1.5 ticks at 98.230. Resistance is seen at 98.335 (Apr 7 and Apr 9 high), with support at 98.170 (Dec 20 high and Apr 11 low).
• US President Trump’s reciprocal tariff declaration on April 2 drove a notable dovish repricing in near-term EUR rates, with the initial announcement featuring more stringent tariffs than many had been assuming. Although the President has since delayed those reciprocal tariffs for 90-days (including temporary reprieve for some consumer electronics goods as of Friday), uncertainty remains extremely high and levies on autos, steel and aluminium remain in place.
• Taken alongside the softer-than-expected March core inflation print and weaker-than-expected March services PMI data, there appear few obstacles to brining the deposit rate to the top of the 1.75-2.25% neutral rate band. The MNI Policy Team’s recent sources piece supported such an outcome.
• Our full ECB preview will be released later this week.