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GBP Up on Rates Optimism, JPY Down on Positive Risk Sentiment; US PCE deflators

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Rates as of 0400 GMT

Market Recap

Once again, a fairly constrained FX market. Moves were mostly limited heading into the long weekend the US and UK, which together account for 60 of global FX trading, will be on holiday Monday.

GBP was the bestperforming G10 currency after Bank of England Monetary Policy Committee MPC member Vlieghe, whos generally one of the most dovish MPC members, turned more neutral. In a speech entitled, What are government bond yields telling us about the economic outlook?, he said his central scenario was that the first rise in Bank Rate is likely to become appropriate only well into next year, with some modest further tightening thereafter. He noted that it will be a major challengeto integrate the large numbers of currently furloughed workers smoothly back into the labour market. The market was particularly encouraged by his addition of a more optimistic scenario in which this transition out of furlough goes more smoothly than he expects. In that case, then a somewhat earlier rise in Bank Rate would be appropriate. That would be soon after 1Q 2022, with a slightly steeper path than in his central case. GBP gained and gilts yields rose 3bp6bps across the curve.

CAD was the second bestperforming currency as oil prices rose. The American Automobile Club AAA forecast that more than 37mn people will travel 50 or more miles from home over this long weekend, up 60 from last year but still down 13 from 2019. figures.

JPY was the major loser, for no…

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