GBP/USD - Yield spread may rise in a GBP-negative manner on Brexit fears

10Y US-UK yield spread stands at the 9-month high.
The spread could rise further in the GBP-negative manner on Brexit fears.
Increased risk of Cable falling below 1.35.

Omkar Godbole FXStreet Contributor

GBP/USD is holding above 1.35, but risks falling well below the previous day's low of 1.3482 as Brexit fears may push up the 10-year US-UK yield spread in the GBP-negative manner.

Currently, the yield differential stands at 126.3 basis points; the highest level since mid-Apr. 2017. Treasury yields could continue to outpace gilts as it is feared that London's vast financial services industry (which accounts for more than 10 percent of GDP) could suffer after Britain's exit from the EU.

As per Reuters report, EU chief negotiator Michel Barnier has ruled out a special deal for one of Britain's most important industries, which accounts for more than 10 percent of GDP. However, analysts believe EU will be flexible as the EU nations risks damaging their own economies if they lose access to the London market.

That said, the US-UK yield spread may rise and Pound could drop if the sound bites from EU and UK indicate the standoff over the future access to the single market for London's vast financial services industry is hardening.

Also, US PPI and weekly jobless claims data could influence the demand for the US dollar.

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "the pair jumped up to 1.3561 with dollar's sell-off, but slowly retreated in the US afternoon to settle a handful of pips above the 1.3500 threshold, heading into the Asian opening with a moderate bearish potential, as in the 4 hours chart, the price was unable to surpass a marginally bearish 20 SMA, as technical indicators turn lower from around their mid-lines, with the momentum downward still limited. Anyway, renewed selling interest pushing the pair below the daily low, could lead to an approach to the 1.3400 region.

Support levels: 1.3480 1.3445 1.3410

Resistance levels: 1.3545 1.3590 1.3615

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	High
1H	Bearish	Neutral	Low
4H	Bearish	Neutral	High
1D	Bearish	Neutral	Expanding
1W	Bullish	Neutral	Shrinking
Updated Jan 11, 03:15 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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