FOREX
- We wrote yesterday that FX vol markets are priming for a more muted reaction to today's Budget relative to 3 of the last 4 fiscal events - with prevailing implied vols considerably lower today than they were for Kwarteng Sep'22, Hunt Nov'22 and Hunt Mar'23. That remains the case this morning, implying a ~60 pip swing in GBP/USD and ~30 pip swing in EUR/GBP, suggesting that while Reeves intends to make broad changes to fiscal rules, the structure of taxation and, thereby, the Gilt remit - the impact on the BoE's policy cycle will be minimal - and the uptick in infrastructure spending gradual enough to leave the BoE to proceed with sequential rate cuts toward neutral.
- Despite the show back above 1.30, the trend theme in GBPUSD remains bearish and short-term gains are considered
corrective. On the upside, initial firm resistance to watch is 1.3065, the 50-day EMA. A clear breach of this average is required to signal any reversal. - The greenback is softer against all others in G10 after a slow start, with a minor break lower from the contained overnight trade for US yields working against the currency and aiding new EUR/USD intraday highs, and new USD/JPY intraday lows.
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