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GBP/USD strikes record low amid UK budget concerns

currency-newsGBP/USD strikes record low amid UK budget concerns
The pound traded with extreme volatility on Monday, with the GBP/USD exchange rate fluctuating in a range of six cents.

Trade in Sterling remains mixed this morning, with GBP/EUR muted at €1.1184 and GBP/USD climbing to $1.0805. GBP/CAD and GBP/AUD are holding steady at C$1.4751 and AU$1.6631, respectively, while GBP/NZD slides to NZ$1.8927.

Coming up, the pound may remain volatile as UK Chancellor Kwasi Kwarteng is set to meet with top London bankers.

What’s been happening?

The pound nosedived at the start of this week, with the currency collapsing to a new record low against the US dollar.

Following the abysmal response to Chancellor Kwasi Kwarteng’s mini-budget on Friday, his comments over the weekend suggesting he is planning more tax cuts exacerbated the GBP selloff.

Speculation the Bank of England (BoE) could intervene with an emergency interest rate hike briefly allowed the pound to claw back its losses, before it plunged again following a statement from the BoE which played down expectations for an extraordinary hike.

The euro, meanwhile, was subdued on Monday, with the single currency being pressured by a larger-than-expected drop in Germany’s IFO business climate index in September.

Political uncertainty also placed some pressure on EUR exchange rates at the start of the week after Eurosceptic, Giorgia Meloni claimed victory in Italy’s general election.

At the same time, the US dollar remained well supported through yesterday’s European trading session, with investors continuing to favour the safe-haven currency amid a cautious market mood.

What’s coming up?

Looking ahead, it seems safe to assume that movement in the pound will remain highly volatile.

GBP investors will be focused on Kwarteng’s meeting with senior bankers and whether he might be rethinking any parts of the budget following the market response.

The latest US durable goods orders release could act as a hurdle for the US dollar later this afternoon as August’s figures are expected to report a slump in goods orders.

In the meantime, a speech by European Central Bank (ECB) President Christine Lagarde could offer direction to the euro. Will some rate hike hints help to buoy the single currency?
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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