Is UK-US Government Bond Yield Spread a Forex Indicator?

10/16/2019 12:30 pm EST

Focus: FOREX

Ashraf Laidi

Founder, Intermarket Strategy Ltd.;

The British pound has risen along with the UK – US government bond yield spread, reports Ashraf Laidi.

As the British pound (GBP) becomes the second highest performing currency in the G10 since the start of the year — posting daily gains not seen in 10 years — here is a look at the current yields situation, with GBP against the UK-US government  bond yield spread (UK minus US).

One pertinent aspect of the current rally is the simultaneous rise in the currency alongside UK yields relative to the U.S. yields. We are not saying currencies always rise along with yield spreads, but when both move in tandem, the trend can be powerful. Forex markets do not care that the yield spread is negative. Forex markets cares mainly about direction, trend and projected yield/rate differentials. As for the FX rate, the breakout above its 200-day moving average paves the way for the 200-week moving average near 1.3150. But first we must take out the 1.3085-90 region.

It will be a wild 72 hours ahead.

GBP-USD Yield Spreads - Cable Daily Weekly Yield Spread Oct 16 2019 (Chart 1)

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Ashraf Laidi recently talked about the Dollar, gold and the Chinese yuan Triangularity at TradersEXPO New York.

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