Ella 
US Treasuries outperformed German Bunds in yesterday’s holiday-shortened session. US Treasury yields slipped 3.4bps (2-year) to -7.8bps (30-year) following a series of weaker-than-expected data releases (ADP employment report, initial jobless claims and ISM services PMI). The minutes of the June FOMC meeting, released after the early US market close, stressed the need for more evidence of cooling inflation before considering a rate cut. But participants were increasingly cautious about the labor market, with “several” participants noting that further weakening in demand could lead to higher actual unemployment rather than fewer job openings. Since the policy meeting, we have seen several Fed officials, including San Francisco Fed President Daly and President Cook, pay special attention to the labor market, so we are not surprised to see this topic gaining more attention within the Fed. German yields (except the 2-year, +1.2bps) fell in tandem with the US, with a net daily decline of up to 5.6bps (30-year). Narrowing yield spreads and bullish sentiment in the stock market (both the S&P 500 and Nasdaq hit record highs) weighed on the dollar. EUR/USD swung from 1.0745 to an intraday high of 1.0817 before paring gains to 1.0786 at the close. The dollar index fell from 105.67 to 105.40, with limited losses. USD/JPY barely rose to 161.55, its highest close in 38 years.
Today is election day in the UK. The pound showed few signs of nervousness, though. After failing to break above 0.85 earlier this week, the pound has strengthened in recent days. Any other outcome than a landslide victory for the Labour Party (which could be record-breaking) would be a surprise. Keir Starmer’s Labour Party has been leading the polls for more than two years. GBP’s reaction to today’s result should be limited, and instead focus should be on Labour’s policy plans and how they will fund them. This will only become clearer as the weeks go by. Nonetheless, we remain negative on EUR/GBP, largely due to the euro’s direction ahead of the next round of French parliamentary elections. In this regard, today’s French auction is worth mentioning. In a cautious tone, the Treasury reduced the target size by EUR1.5 billion to EUR10.5 billion, selling bonds maturing between 2033 and 2066 in four tiers. Despite the financial markets being closed for Independence Day, politics remains a central topic in the US. Biden’s poor performance in the debate with Trump has led to growing calls within the party for Biden to step down. We expect an announcement in the coming days. In the absence of US and economic data, trading in the FX and FI core markets will be technically inspired.
