George Cole, Research Analyst at Goldman Sachs, suggests that the move in US and UK front-end rates since the beginning of the year has been substantial. Key Quotes “In fact, the decline in 2-year US and UK swap rates has been larger than the downward move in EUR and JPY equivalents (approximately -37bp and -31bp in the US and UK vs -24bp and -15bp in the Euro area and Japan). Given central bank guidance towards rate hiking cycles – actual in the case of the Fed and eventual in the case of the UK – these upward sloping curves had the furthest to fall. It also implies that interest rates differentials moved against USD and GBP in favour of the safe haven currencies EUR and JPY. The probability of negative policy rates 12 months ahead (assuming a constant 3m-OIS spread) has hit new highs in the last week following the BoJ’s move to negative rates in late January (although it has fallen back after Friday’s US employment report). This is consistent with the fall in market rates and a shift in the rate distribution lower. However, unlike the EUR and JPY curves, the skew of the US and UK curves continues to be towards higher rates. With both the Fed and the BoE continuing to point towards future rate hikes, the market still tilts the balance of risks towards higher rates – albeit at a very gradual pace.” For more information, read our latest forex news.