UK government borrowing costs are declining as investors anticipate lower interest rates. The 2-year gilt yield is approaching levels not seen in over three months, reflecting market expectations of two 25 basis point rate cuts this year. Investors are projecting the first reduction at the Bank of England's September meeting. Additionally, the current political stability is contributing to downward pressure on gilt yields, despite long-term concerns about potentially increased borrowing under the new Labour government.
A break and open below the March 22nd low at just under 4.08% should open the way for the 2-year gilt yield to test 4.0% and then 3.96%.
US 2-Year Gilt Yield
GBP/USD remains around the 1.2800-1.2850 area ahead of Thursday’s US CPI release. Cable tested, and quickly rejected the early June 1.2863 level on Monday and now needs a catalyst if it is to break higher. All three simple moving averages remain positive. Initial support is seen around 1.2750.
