The Sept 16 contract implies a 32 bp yield, while the June 17 contract implies 30 bp yield.  The implied yield of the September contract has fallen 25 bp since the referendum.  The yield of the June contract has dropped 40 bp, which partly reflects the unwinding of a tightening bias that investors had expected. 

Carney suggested there may be scope to cut rates, but investors expect the BOE to stop shy of negative interest rates.  This is an experiment by primarily the ECB and the BOJ and the preliminary results are not particularly encouraging.  Cutting the base rate in half (to 25 bp) may be the most the BOE is prepared to do on the price of money, but it is expect also to do more with the quantity of money.  This entail launching another round of gilt purchases.   A GBP50 bln three-month program may be the in the cards. 

After the historic drop, sterling spent most of this week consolidating in a triangle pattern, which is often a continuation formation.  The top of the triangle is formed connecting Monday, Wednesday, and Thursday's highs.  It is near $1.3490 now and falls a cent by the end of next week.  The bottom of the pattern connects Monday's and Thursday's lows.  It is found by $1.3215 now and $1.3340 on July 8. 

One of the leading candidates as the next Prime Minister, Gove, has indicated a reluctance to invoke Article 50 this year.  It is not clear why or what benefit is secured by extending the process.    There is nothing to negotiate with the EU until Article 50 is triggered.  In the meantime, UK's influence in Europe is already declining, though its obligations and costs (now Gove says he was talking about gross costs during the campaign rather than net costs as the remain camp insisted on using).  It is difficult to envisage how it can accept the rotating EU presidency next year.  

Some people are arguing the longer it takes the UK to invoke Article 50 the more likely it is never triggered.  One of Gove's key rivals for the post, Home Secretary May, was sympathetic to the remain camp but appears resolved to carry out the wishes of the majority more decisively.  She also is better positioned than Gove to begin (trying to) healing the party's wounds.

Marc Chandler
Global head of currency strategy at BBH
Brown Brothers Harriman