GBP: Deepening yield spreads highlight downside risks - Westpac

Tim Riddell, Research Analyst at Westpac, notes that the GBP has been stable despite the deeper slide in the UK-US 2yr yield spread.

Key Quotes

“Any deterioration in survey data, or increased discussion of “hard” Brexit (limited access to EU post actual Brexit, especially important for financial services) will see the spread deepen and GBP weaken.

Although GBP has held above 1.2920, rebounds are unlikely to persist. The post-Brexit-vote low of 1.2800 remains a key downside attraction. Any acceleration on a break below 1.2920 could focus markets on various technical targets in the 1.2450-00 area.

BoE speeches have noted a more stable initial reaction to Brexit than officials had feared, but also stress that the impacts on the economy are still to be felt and that the Bank stands ready to provide more accommodation if necessary.”