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Cracks in GBP: Inverted Gilt Curve and Economic Pressure

Cracks in GBP: Inverted Gilt Curve and Economic Pressure
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  1. GBP: Cracks starting to show?

    GBP: Cracks starting to show?

    UK headlines were grabbed yesterday by two-year Gilt yields blasting through 5% and raining more misery on those UK mortgage holders needing to refinance. The UK 2-10 year Gilt curve is now the most inverted since 2000. It's true that a heavily inverted Gilt curve makes it more expensive for foreigners to hedge UK Gilt holdings – i.e. a sterling positive – but this heavily inverted curve will be heaping a lot of pressure on the UK economy. We are probably reading too much into one day's price action, but it could be noticeable that sterling did not follow Gilt yields higher yesterday.

    Expect EUR/GBP to consolidate into tomorrow's big release of May UK CPI. And again we would see current levels in EUR/GBP as a good area to increase FX hedge ratios on GBP receivables.


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