GBP/USD has been the focus point this morning. After falling -3.57% on Friday, we slipped to a low 1.0766 in early trade (per Bloomberg), before recovering, last just above 1.0800. The bearish downside target is the March 1985 record low of 1.0520. 1 month implied vol is at 17.35%, fresh highs since early 2020 (22.67% was the peak during this period).
- The focus remains on Friday's significant shift in the government's fiscal policy stance, with large tax cuts undermining confidence in the pound.
- There seemed little shift in the UK government's stance over the weekend, with various officials stating that they were focused on boosting long term growth, and not concerned about short term market gyrations (see this link and here as well for additional details).
- Soaring front end yields, 2yr to 3.89%, +45bps on Friday, did little to support GBP. The focus will shift to funding the tax cuts (see this MNI Interview for more details) and a more aggressive hiking path from the BoE.
- The outlook for the UK's rating is also likely to be a focus point, with the country already running twin deficits (current account + fiscal) of more than 10% of GDP for 2022 according to the latest Bloomberg consensus estimates.