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GBP: What Do the Sell-Side Think of GBP After the Budget? (1/2)

GBP
CEEMEABulletUKGlobalForeign Exchange BulletsRegionMarkets

We wrote yesterday that an aggressive surge in volumes prompted GBP to begin to re-correlate with Gilt weakness, despite initial resilience through the first phase of the market reaction to the UK Budget Aggressive Pick-Up in Volumes Pressures GBP to Multi-Month Lows . We see the market response this week as being a rational, and potentially stickier, reaction to higher inflation expectations and the risk of increased issuance: Yield Jump Notable Not Exceptional, Could Be Sticky Given Drivers , while the magnitude of the move, while notable, is not particularly rare for Gilts in recent years.

  • Sell-side analysts flag the risks for GBP ahead as being the BoE's response to the spending plans at next week's rate decision, any potential fallout for business confidence ahead, and whether shallower BoE easing expectations can back up the GBP into year-end.
  • BBG analyst consensus for Dec31 remains 1.3000 for GBP/USD, however options markets have become more pessimistic on GBP over the past few sessions, with implied pricing suggesting a 32% chance (from 28%) of GBP/USD below 1.2750 at year-end, while the odds for trading above 1.3250 have declined to 20.8% from 25.2% at the beginning of the week. 
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We wrote yesterday that an aggressive surge in volumes prompted GBP to begin to re-correlate with Gilt weakness, despite initial resilience through the first phase of the market reaction to the UK Budget Aggressive Pick-Up in Volumes Pressures GBP to Multi-Month Lows . We see the market response this week as being a rational, and potentially stickier, reaction to higher inflation expectations and the risk of increased issuance: Yield Jump Notable Not Exceptional, Could Be Sticky Given Drivers , while the magnitude of the move, while notable, is not particularly rare for Gilts in recent years.

  • Sell-side analysts flag the risks for GBP ahead as being the BoE's response to the spending plans at next week's rate decision, any potential fallout for business confidence ahead, and whether shallower BoE easing expectations can back up the GBP into year-end.
  • BBG analyst consensus for Dec31 remains 1.3000 for GBP/USD, however options markets have become more pessimistic on GBP over the past few sessions, with implied pricing suggesting a 32% chance (from 28%) of GBP/USD below 1.2750 at year-end, while the odds for trading above 1.3250 have declined to 20.8% from 25.2% at the beginning of the week.