Last week we saw a “Black Friday” event with Sterling falling over 3% against the Dollar and over 2% against the Euro. This has brought GBPUSD down to 1.0850 and GBPEUR to 1.1190. The only reason the losses were capped at these prices is because the market closed for the weekend- if this happened on any other day I dread to think what would have happened to prices.
The reason for the big sell-off was following Chancellor Kwartengs “Mini Budget” which was full of tax cuts to stimulate the UK economy- a risky approach but objectively could work very well if all goes to plan- unfortunately, this would require a lot of Government borrowing- and once GILT yields rose on Friday, the cost of borrowing for the Government multiplied in a big way, thus making this plan more and more unfeasible. Traders made their feelings known about this budget by selling off the Pound- and this was already in a week where the Dollar was catching a bid across the board, with EURUSD prices at 0.9686.
So what do we expect to happen next? It i a difficult situation- I do not see Sterling gaining back value anytime soon, in fact, there are talks of a potential emergency BoE rate rise in the coming weeks to stabilize markets- how much this would help though is uncertain at this point.
I appreciate this move will have many of you wanting to discuss strategy- so if you would like to book a call in regards to your situation please don’t hesitate to contact me.