EUR/USD, EUR/GBP, GBP/USD flows: event risk focus as odds of UK PM departure lengthen; US-China meetings kick off
Iran rhetoric and lack of progress, US-China meeting kick off
UK PM exit tone less febrile, chances of departure drop off
Another session overnight of false calm, regionals settling down after some early pressure, as the Iran situation shows no signs of easing and as US-China meetings kick off.
U.S. Treasury Sec Bessent and Chinese VP He Lifeng started talks in South Korea, expected to focus on various trade issues, ahead of Trump’s Beijing visit Thu-Fri. If the market was expecting an accord on Iran, Trump wasn’t exactly sounding too promising (‘I don't think we need any help with Iran. We'll win it one way or the other, peacefully or otherwise’).
In the UK, PM Starmer is set to meet one of his main challengers Health Secretary Streeting ahead of today’s King’s speech. At the moment there’s something of an intricate example of game theory playing out as Starmer stares them out, Streeting proves reluctant to kick off a challenge, while supporters of Burnham need to play the long game for their candidate to be in position to compete. Indeed, odds on Starmer’s departure have slipped off quite a lot as the mood is less febrile, as political commentators put it, than yesterday: out by June30 is now down to just 33%, and by Dec31 is only 65% from the 80%+ level. The 'odds on the new PM' now have 'no new PM' topping at 37% ahead of Burnham at 24%.
Some of the momentum may have ebbed from the early week UK moves and maybe gilts could even take the opportunity for a bit of backfilling of the gap action before taking stock.