The pound suffered on Friday the worst decline since at least March 2020, with.GBP/USD losing more than 300 pips.Analysts at MUFG Bank, remain bearish on the pound and point out the loss of confidence in GBP is becoming more concerning.
“We now expect the BoE to hike by 75bps on 3rd November; a 100bp move can’t be ruled out. The OIS market is priced for a 4.00% Bank Rate by year-end. We don’t think we quite get there but it is clear where short-term rates are heading. The primary risk here relates to the timing of this huge fiscal stimulus on top of the lack of accountability.”
“We remain bearish GBP as it approaches levels closer to the all-time low of 1.0520 in 1985. There is certainly no ‘happy-feel’ to this fiscal give-away and appears if anything to have increased the level of uncertainties that were already very elevated.”
“At the same time the BoE’s decision to raise rates by “only” 50bps this week instead of 75bps like the ECB and Fed could be adding to concerns that the BoE is falling behind the curve in fighting inflation. We expect these policy concerns over the appropriateness of both fiscal and monetary policy to remain in place in the near-term weighing heavily on the GBP. Furthermore, the renewed sell-off in global equity markets and tightening of global financial conditions make it more challenging to finance the UK’s elevated current account deficit reinforcing downward pressure on the EUR/USD drops below 0.9750 after upbeat US PMI data
Following a brief consolidation period, EUR/USD came under bearish pressure and dropped below 0.9750 during the American session on Friday. Better than expected Manufacturing and Services PMI figures from the US provided a boost to the dollar, further weighing on the pair.
GBP/USD renews multi-decade below 1.0900
After having recovered toward 1.1100 earlier in the day, GBP/USD turned south in the American session and touched its lowest level since 1985 below 1.0900. The PMI data from the US showed that the private sector activity recovered in September, fueling another leg higher in DXY.
Gold falls below $1,650, looks to post weekly losses
Pressured by the renewed dollar strength on upbeat US PMI figures, gold lost its recovery momentum and dropped below $1,650. Meanwhile, the 10-year US T-bond yield is up nearly 1%, forcing XAU/USD to stay on the backfoot heading into the weekend.