They may be pricing an adverse outcome in the Brexit trade talks. In general, the breakeven rate shares an inverse relationship with sterling, given that strength in the currency tends to damp imported prices and curbs inflation. The defiant increase in the rates in the face of the pound’s resilience suggests that traders in the rates market are bracing for a possible collapse in the talks between the U.K. and the European Union. Such an outcome would knock the pound lower and stoke inflation since — in the worst scenario — supply bottlenecks may ensue. […] Whatever the outcome of the current talks, it is clear that inflation- breakeven traders are taking no chances.
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