The pound's gains today come despite inflation came at its slowest pace in more than two and a half years, as expected, but the rise in UK gilt yields and the narrowing of their gap with their corresponding US Treasuries have maintained the pound's gains.
While today's numbers do not seem to have changed the markets' expectations about the possibility of an interest rate cut for the first-time next August by the Bank of England - which is expected to keep current rates unchanged at its meeting tomorrow.
I believe that the continuation of the downward trend of the yield gap beyond the short term may push it towards zero next, and this would give more momentum to the bullish trend in the pound.
While the UK 10-year gilt yield reached 4.08% today, the US Treasury yield reached 4.129%, and the German bund yield reached 2.389%. While the yield gap between the US and the UK amounted to 0.135%, while the yield gap between the German bund and the UK amounted to -1.692%.
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