Potential For More Prudent Fiscal Policy Supports GBP, Risk-On Flows Take Hold

The GBP appreciated at the start to the week after PM Truss sacked Chancellor Kwarteng and appointed Jeremy Hunt to succeed him. The new Chancellor flagged potential for further U-turns on the fiscal plans that had roiled UK financial markets. BoE Gov Bailey spoke with Hunt over the weekend, noting that there was a "meeting of minds" on the importance of sustainable fiscal policy.

• Cable added ~50 pips before stabilising, while EUR/GBP is down ~270 pips as we type. GBP/USD implied volatilities edged higher, with one-month tenor last at 18.8%.
• UK news helped support broader risk appetite, with safe-haven currencies trading on the back foot. The greenback paced losses, with a slip in the BBDXY index facilitated by lower U.S. Tsy yields.
• Participants were on the lookout for signs of Japanese officials intervening in FX markets as FinMin Suzuki & top FX diplomat Kanda reiterated that they stand ready to step in. It had earlier been flagged that the option of a stealth intervention remains on the table.
• Spot USD/JPY oscillated near neutral levels after printing 32-year highs last Friday. It last sits at Y148.71 and the psychologically significant Y145.00 figure is firmly in sight, with BoJ Gov Kuroda adamant to keep powerful monetary easing in place.
• As spot USD/CNY was testing the CNY7.2 threshold, RTRS reported that major Chinese state-owned banks were swapping yuan for dollars in forwards market and selling USD in spot market to stabilise the redback.
• U.S. Empire State Manufacturing Survey headlines the global data docket today. ECB members dominate the central bank speaker slate, with Lane, de Guindos, de Cos and Nagel set to take the floor.