Increasing Yields Push the Pound Higher |
UK data has increased the market’s confidence that the BOE will hike rates and this has UK interest rates broadly higher, with the short-sterling futures strip yields rising 6-9 basis points and the 2-year gilt yield rising 7 basis points. The differential between the US short term yield and UK short term yields have reached a 12 month high. Short term yields in the US remain low. The FOMC has made it clear to the market that they plan on keeping short term borrowing rates targeted to zero for an extended period.
The increasing yield differential is driving the price of the Pound relative to the US dollar higher. A break above 1.6250, will likely lead to a new bull trend. It seems that the BOE and ECB are likely on a shorter calendar for tightening rates than the FOMC.
On Wednesday, the equity markets in the US were mixed despite better than expected employment data from ADP, helped offset profit taking. Private-sector jobs in the U.S. rose by 187,000 last month, according to Automatic Data Processing Inc (ADP). Economists had expected ADP to report a job gain of 143,000 in January. The estimated change in employment for December was revised 247,000 versus the large 297,000 increase first reported. Market participants are anticipating a 135,000 increasing in Non-farm payrolls on Friday. The BLS release the employment report on Friday at 1230 GMT.
Peripheral European bonds are rallied. Ten-year yields are off 8-10 basis points in Portugal and Italy, 17-18 basis points in Spain and Ireland and almost 30 basis points lower in Greece. The market has taken in stride S&P’s downgrade of Ireland’s rating and maintenance of a negative outlook. This is being driven by ideas that a “comprehensive” plan is in the works and will be discussed this weekend.
Originally posted here.
