GBP/USD: Finds A Base Amid Rising UK-US Yield Spread

The Sterling went through a volatile ride on Wednesday, initially boosted on higher-than-expected UK CPI numbers, only to lose all its advantage and some more evaporate as a reflection of renewed Brexit pessimism.

The pair ends with most of the volume transacted in an area of 50 pips, with over 30-40pips of upside/downside extensions not finding enough equilibrium to generate value outside the current range of 1.3130-1.3170.

For now, the downside appears to be well supported by a rising UK vs US 10-yr bond yield spread. If one utilizes the UK yield as a proxy of brexit concerns, it discerns an overall sanguine picture, with fixed income players not that concerned.

As long as the bond yield spreads underpin the price, the risk remains skewed towards fading downcycles. A resolution away from 1.3130-70 is necessary, which should materialize on the release of the UK retail sales data today.

Notice the common pattern in GBP/USD price action: When the UK vs US yield spread recovers, buy on weakness strategies at key levels tends to pay off. In other words, as it stands, 1.3130 and 1.31 may provide opportunties.

Trade safe!