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Aug 14 - 02:36 PM
GBP/USD - COMMENT-Inversion Takes Toll On Sterling As Brexit Lingers Offstage
First appeared on eFXplus on Aug 14 - 12:35 PM

GBP/USD has reversed early NorAm strength, dropping from Wednesday's high 1.2101 to hover near flat at 1.2065, as the inversion of the 2/10 Gilts spread GB2GB10=TWEB heightens expectations that the BoE will have to ease policy, especially as Brexit uncertainties linger.
The U.S. curve inversion created a splash , but the dollar's safe haven status has facilitated a dollar recovery .
The pound benefits from no such status.
While the BoE is loath to cut rates in the face of mounting Brexit and political uncertainties for fear of a disorderly move lower in GBP/USD, rate futures across the developed markets are pricing in enhanced accommodation.
Data BOEWATCH on Eikon shows a 37% chance for a hike at the Sept.
19 meeting and a 60% chance for a hike in December.
Support for the pound at the Aug.
12 low by 1.2015 has held, protecting suspected option interest at 1.2000 and the January 2017 low at 1.1983.
Should dovish BoE sentiment pick up ahead of the November meeting support near 1.2000 is likely to give way, and a run toward the October 2016 low at 1.1491 nL9N25800C appears likely.

GBP Chart: Click here

US & GB 2-10 Spread Chart: Click here

Source:
Refinitiv IFR Research/Market Commentary

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