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Correlations Show Fed Just as Responsible as BoE/UK Gov For GBP Sell-Off

GBP
  • With GBP/USD sliding to multi-decade lows, much of the pain has been shelved with the UK Government and the Bank of England for protracted policy uncertainty over the coming quarters.
  • While that may be partially true, it's likely weakness in the pair would have played out regardless of domestic UK events this week. The correlation between US equities (the e-mini S&P) and GBP/USD has firmed solidly this year, and weakness in stocks following Wednesday's FOMC decision remains a driver for currencies:

Figure 1: E-mini S&P vs. GBP/USD

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  • With GBP/USD sliding to multi-decade lows, much of the pain has been shelved with the UK Government and the Bank of England for protracted policy uncertainty over the coming quarters.
  • While that may be partially true, it's likely weakness in the pair would have played out regardless of domestic UK events this week. The correlation between US equities (the e-mini S&P) and GBP/USD has firmed solidly this year, and weakness in stocks following Wednesday's FOMC decision remains a driver for currencies:

Figure 1: E-mini S&P vs. GBP/USD

Keep reading...Show less