The selloff in U.K. assets went into overdrive today, sending the pound to an all-time low
he selloff in U.K. assets went into overdrive on Monday, sending the pound to an all-time low, slamming government bonds and sparking talk of emergency action by the Bank of England.government’s new fiscal measures,
“The market remains very fragile and with the moves being driven by emotion it is very difficult to trade intraday,” said Antony Foster, head of G10 spot trading in EMEA at Nomura International Plc. “Parity for cable feels like a matter of time and while vols are off their highs there is no sense of relief in the price action this morning.”
At Bloomberg Economics, economist Dan Hanson said currency’s drop “will set alarm bells ringing at the central bank.” If it’s sustained, he sees the Bank of England raising its benchmark by 100 basis points.Britain’s New Prime Minister Liz Truss Is Inheriting a Mess Another option is direct currency intervention, but it doesn’t have enough reserves for a meaningful, sustained action. One possible response to the bond market moves is for the BOE to delay a planned sale of the gilts it bought under quantitative easing. That process is due to begin next week.
Sterling’s early-hours slump marked its biggest intraday drop since March 2020, when the Covid-19 outbreak roiled markets worldwide. A CME Group spokesperson confirmed that the dramatic fall triggered a 2-minute pause in trading of front-month British Pound futures contracts at 2:01 a.m. U.K. time, after a circuit-breaker kicked in.
“He needs to reaffirm that tax cuts are only part of the story, not the full story,” Lyons said on Bloomberg Radio. “What they’re following is a supply-side agenda.”
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