September 23, 2022 15:41 GMT
- 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
- The same patterns are visible between the GBP/USD rate and US borrowing costs, with strong co-movements behind the currency pair and the inverted US 10y yield price:
Figure 2: US 10y yields (inverted) vs. GBP/USD
- So, while the UK fiscal statement and Thursday BoE decision can shoulder some of the blame, it's unlikely the rate would have emerged unscathed regardless of UK domestic events this week
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