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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


  • 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
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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