Global FX Strategy: EURGBP at key levels into catalysts, but gilt flows may be the key driver

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Global FX Strategy: EURGBP at key levels into catalysts, but gilt flows may be the key driver

Global FX Strategy

16 June 2026 Citi Research

We believe the disconnect between EURGBP and its drivers is due to a recent pick-

up in overseas demand for gilts (Figure 5). This makes sense, in our view, given how

attractive UK yields have been this year, especially in the front-end where the

market came close to pricing in 100bps of hikes for the BoE. We suspect much of

the gilt overseas demand is in the front-end, which should see more FX-unhedged

flows (supporting GBP).

The main question for GBP is whether these flows were opportunistic given yield

levels earlier in Q2, or if current levels remain attractive enough for further flows?

We do not have a clear answer. The next overseas gilt purchase data for May should

come out in the first week of July. We suspect this will continue to show further

foreign inflows as our own GBP Real Money flows historically lead the official series

(Figure 6) and in general front-end yields were still elevated in May. However, recent

weeks have shown only marginal new Real Money buying, which may suggest

current yields are no longer high enough to attract overseas capital in significant

amounts. Or it could be a buying pause ahead of a plethora of catalysts this week.

But any resumption of Real Money buying – potentially sparked by one of this

week’s catalysts – could lead to a proper EURGBP downside break through 0.86.

Figure 5. Overseas demand for gilts has increased recently Figure 6. GBP Real Money flows have led overseas gilt flows

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