GBP: Stretched REERs, With GBP Topping Most 5-10Y Metrics
May-21 16:43
- UK CPI data came in well ahead of expectations, with tax changes for transport and the timing of Easter driving price gains well ahead of both market and BoE expectations. GBP/USD rallied in response, with the pair hitting a new multi-year high at 1.3469. These gains were short-lived, however, despite a further contraction of rate cut pricing across UK OIS markets (38bp of cuts to year-end).
- We note that GBP/USD has struggled to maintain gains above the 1.34 handle on several occasions already this year, as well as in 2024, 2019 and 2020. Spot gains today saw a brief print at 1.3469, before reversing more than 70 pips but then admittedly lifting back to ~1.3450 to partly contain the overall bullish breakout.
- The stretched nature of GBP is evident in real effective exchange rate terms as well, with the daily Citi REER 6.6% above its five-year average and in the 96th percentile across the same period.
- This is easily the highest relative ranking across DMs, with the EUR in second place in its 81st percentile (albeit just 1.9% higher from its average), boosted by the March defence/infra spending announcements and haven flow amidst the “sell the US” theme in global markets (which has seen the USD REER slip 6% from the multi-year highs in early February).
- The GBP strength is more pronounced still over a ten-year window, 8% higher than average, although only in the 71st percentile as it includes pre-Brexit highs.
- The EUR on the other hand tops the 10-year ranking, in the 81st percentile, but is only 2.5% above its average having kept tighter ranges.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
LOOK AHEAD: Tuesday Data Calendar: Fed Speakers, Richmond Fed Data, 2Y Note Sale
Apr-21 16:34
- US Data/Speaker Calendar (prior, estimate)
- 22-Apr 0830 Philadelphia Fed Non-Mfg Activity (-32.5, --)
- 22-Apr 0900 Fed Gov Jefferson, Economic Mobility Summit
- 22-Apr 0930 Philly Fed Harker, Economic Mobility Summit
- 22-Apr 1000 Richmond Fed Mfg Index (-4, -6)
- 22-Apr 1000 Richmond Fed Business Conditions (-14, --)
- 22-Apr 1130 US Tsy $70B 6W bill auction
- 22-Apr 1300 US Tsy $69B 2Y Note auction (91282CMY4)
- 22-Apr 1340 MN Fed Kashkari Speaks moderated discussion
- 22-Apr 1430 Richmond Fed Barkin fireside chat (no text, Q&A)
- 22-Apr 1800 Fed Gov Kugler on Mon/Pol Transmission (text, Q&A)
US TSY FUTURES: BLCK: Jun'25 5Y Buy
Apr-21 16:01
- +6,500 FVM5 108-16.25, buy through 108-15.75 post time offer at 1148:59ET, DV01 $267,000. The 5Y contract trades 108-15.75 last (+2.5)
PIPELINE: Corporate Bond Update: $5B Amex 4Pt Launched
Apr-21 15:57
Amex dropped the 6NC5 SOFR leg:
- Date $MM Issuer (Priced *, Launch #)
- 04/21 $5B #American Express $1.6B 4NC3 +98, $400M 4NC3 SOFR+126, $1.5B 6NC5 +108, $1.5B 11NC10 +128
- 04/21 $700M Excelerate Energy 5NC2
- 04/21 $2B QXO Inc. 7NC3 investor calls
