GBP/USD collapses to record low as markets rocked by UK mini-budget

Philip McHugh September 26th 2022 - 2 minute read

The pound collapsed on Friday as markets were rattled by the contents of UK Chancellor Kwasi Kwarteng’s mini-budget. 

Sterling continues to plummet this morning, with GBP/EUR collapsing to €1.1062 and GBP/USD crashing to $1.0726. GBP/CAD has nosedived to C$1.4556, while GBP/AUD and GBP/NZD plunge to AU$1.6444 and NZ$1.8685, respectively.

Coming up, will another slump in German business morale push the euro lower this morning?

What’s been happening?

The pound routed at the end of last week with GBP exchange rates nosediving amid an adverse reaction to the UK government’s new budget.

GBP investors fear the massive tax cuts outlined in Chancellor Kwasi Kwarteng mini-budget will lead to a dramatic and unsustainable increase in government borrowing.

Adding to the pressure on the pound was the publication of the latest UK PMI’s, which reported a surprise contraction in service sector growth this month.

Meanwhile, the US dollar rocketed higher at the end of last week, with skittish investors flocking to the safe-haven currency as market risk appetite fell off a cliff.

Considerable USD strength led the euro to slump at the end of last week.

The euro also faced pressure on Friday as the Eurozone’s own PMI releases reported a larger-than-expected slump in the bloc’s private sector this month.

What’s coming up?

Turning to the start of this week, we see the pound selling bias remains firmly in place, with GBP/USD plunging to a new record low amid alarm over Kwarteng’s tax plans.

However, there is speculation the Bank of England (BoE) could step in with an emergency rate hike, which could shore up Sterling.  

The focus at the start of the session for EUR investors will be Germany’s latest IFO business climate index.

If business morale in the Eurozone’s largest economy continued to deteriorate this month, we could see EUR exchange rates slump this morning.

However, a speech from European Central Bank (ECB) President Christine Lagarde may help to trim any losses, if she strikes a broadly hawkish tone.

Finally, will a prevailing risk-off mood help the US dollar to extend its carry through its momentum to the start of this week’s session?

Written by
Philip McHugh

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