UK rates should rise more than euro ones - Nomura

A key support for the trade comes from rates spreads. Thus far, in the initial reaction to the Trump win there has been very little movement in EUR/UK rates spreads. 

However,as the market settles down, we believe that will change for three key reasons:

1) As Figure 1 shows, the UK has a much higher beta to US rates than the euro area, especially at the front-end of the curve which matters most for FX.

2) The drivers of the rise in US rates – belief in looser fiscal policy, higher infrastructure investment and a more generally inflationary environment – have much clearer read-throughs to the UK than the euro area.

3) Europe has its own political issues coming up, most notably the Italian referendum in December and then the Dutch, French and German elections next year. Markets will be increasingly wary of “tail” events. And our base case remains an extension of ECB QE announced in December as well.