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    GBPUSD inter-markets: Gilts forcing the downside Pablo Piovano

    The Sterling has come under renewed selling pressure in the second half of the week, dragging GBP/USD to the area of multi-week lows in the 1.4325/20 band after briefly probing the mid-1.4600s on Wednesday.The move was largely inspired by the drop of yields in UK Gilts, which are trading in weekly lows for the time being, widening in turn the spread differential vs. its US peers. Still in the UK, ‘Brexit’ fears, albeit somewhat alleviated by recent Referendum polls, remain quite a concern amongst traders, as the shadow of the polls’ performance in the last UK elections prompts caution, to say the least.On the USD-side, the ongoing rebound of the greenback seems to be following now increasing hopes of a rate hike by the Federal Reserve at its meeting in July, backed by the current bounce of the Fed Fund rate contracts. With odds for a hike next week in marginal levels (practically ruled out), the probability of a hike in July now hovers over 30% according to the CME Group’s FedWatch tool.In the very near-term horizon, speculations whether the UK should vote to remain or to leave the European Union would likely drive the sentiment around GBP, always with an eye wide open on UK yields. However, as ‘inaction’ is already priced in at the FOMC meeting, USD is capable of extending the ongoin bull run, as market participants have already started to see the likeliness of higher rates in July. GBP/USD is thus poised to remain vulnerable. 


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