EUR/USD, GBP/USD, USD/JPY flows: Yields at the highs; BoE (and GBP?) the laggard?
Distillates remain pressured following the fresh Strait exchanges
Yields at the highs, JGBs at 30yr highs, on the ongoing fiscal, monetary, inflation and premia mix
BoJ, ECB and Fed all odds-on to hike in Sep, BoE the standout - could leave GBP the laggard near-term
An all too familiar backdrop following the UK bank holiday as simmering tensions in the Strait return to tit-for-tat exchanges for the first time in over a month and as Trump suggests there will be a response to the Iranian missile launches at US bases after the UK strikes on Larak Island.
Reactions get ever more muted these days, but Brent front month continued its steady lift off the $85 range lows of last week and now holding this week's high just off $91.50 ahead of the $92.90 high of the 25 and the $95 range highs. Perhaps more relevantly though, distillates are more pressing and diesel is back up at the mid Aug tops again which are only just off the Mar-Apr highs.
Bonds also remain a focal point, JGBs seeing 10yrs hit 3% for the first time in 3 decades with high initial budget requests keeping the fiscal picture prominent and accelerating tightening expectations still pressuring. G20 saw the expected pressure from US' Bessent for the BoJ ‘to do the right thing’ and 'the market was pricing that in now' (Sep is now at least 75% priced in).
Pressure though is being seen across the majors as US10s also extend the move above 4.75% and push towards the 4.8%~ 2025 highs with new decade and a half highs for bunds too. It’s a tightening contest that is making for a complicated FX picture with switching focal points and arguably GBP at risk of lagging behind the pack near-term as it remains more will to wait and see. BoE’s Bailey repeated that ‘I think we can watch this situation for the moment’ with evidence of second round effects lagging ang downplayed any need for the BoE to respond to a Fed move.