GBP-USD Yield Spreads
As GBP becomes the 2nd highest performing currency in the G10 since the start of the year, posting daily gains not seen in 10 years, here is a look at the current yields situation, with GBP against the UK-US govt bond yield spread (UK minus US) One pertinent aspect of the current rally is the simultaneous rise in the currency alongside UK yields relative to the US. We are not saying currencies always rise along yield spreads--But when both move in tandem, the trend can be powerful. FX does not care that the yield spread is negative. FX cares mainly about direction, trend and projected yield/rate differentials. As for the FX rate, the breakout above its 200-DMA paves the way for the 200-WMA near 1.3150. But first we must take out the 1.3085-90 region. It will be a wild 72 hours ahead.
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