With the increase in VAT CPI data is expected to edge closer to the 3% mark which would cause a real problem for the bank of England. Cable has rallied 600 ticks from the lows on January the 6th, to trade at 16406 currently on the back of this.
Technically GBP/USD : The level 1.62400 very important to determine the direction for the pair Sterling against the U.S. dollar , we expect today some of the volatility for the pair and if the four-hours candle closed below the level 1.62400 the fall become certain for the pair to the level 1.60600.
Turning to Bonds, we are near highs across the short end, as it is pretty much certain that none of the major economies will be raising rates anytime soon, and at the earliest the second half of the year. Front months spreads continue to cntract as the likelihood of rate hikes continue to diminish.
News flash: As I write CPI for the UK comes out much stronger then expected. This has led to a 17 tick sell of in the red month short sterling contracts and almost 100 points taken off the Gilt futures. Although it is unlikley that rates will be raised in the first half of the year, it seems increasingly likely that the UK could be the first to move as inflation is now almost 1% above the 2% target set by the government.
Interesting times ahead.
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Rajen, I highly appreciate your website as it's very seldom to read something about Euribor yield curve trading. I'm a portfolio manager at an insurance company with a focus on short term rates. Good to have this blog!!!
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