Today, the UK witnessed a tepid demand during the auction of 30-year Gilts, resulting in an uptick in interest rates across the board. Notably, the yield on the 30-year Gilts soared to its highest point since 1998, while the 10-year yields marked their highest level since earlier this year, as highlighted by Shaun Osborne, Scotiabank’s Chief FX Strategist.
Shifting focus to the GBP/USD, the pair finds itself firmer in the mid-1.25 range. “Given the relatively robust yields in the UK, one would expect a bit more buoyancy for the pound, yet it seems to be underperforming against the consistently strong USD,” Osborne observes. “Even on the shorter end of the curve, 1-year swap spreads have tightened significantly since November, although the pound has yet to shake off its somewhat subdued tone.”
On a more technical note, Sterling is flashing some encouraging signals on the weekly chart. However, much like the Euro, it is still hovering below the immediate resistance of 1.2610. Should it successfully break past the low 1.26s, we could see its upside potential grow towards the 1.27 mark. Support levels are currently pegged at 1.2500/10.
