GBP/USD, EUR/GBP flows: Having another stab at the 'political short' trade
Gilts spike at open after further news of Labour push to replace Starmer
Technicals had already suggested some scope for GBP correction
That said, the narrative is a bit one-dimensional, and there is already short spec positioning
Reprising one of its favoured thematic trades, seeing some attempts to get some fresh momentum behind the political short GBP trade. Reports of more than 70 Labour MPs calling for the PM to go and an exodus of ministerial aides provides the news backdrop, but it’s more the continuation of the election fallout really. A “crunch cabinet meeting” this morning being watched for any fallout today now.
Gilts notably see quite a strong gap open, the future testing the 85.76 contract low with 10s back clear of 5% testing the 23 Mar 5.11/2 highs. 30s also tested the recent 5.79%- highs. Cable might have scope back to 1.35 on this move as the dollar firms, while EUR/GBP continues its bounce back into the April range after holding and lifting off 0.8610 lows, as favoured in the Weekly Outlook.
All that being said, it does have that slight feel of a cliché overly one-dimensional trade and we have seen speculative pre-positioning for it, that has actually been slightly out the money so far. Gilts might look to refill their opening gaps at some point and then it’s a case of whether the major support / yield resistance areas hold.