Forex

The intermarket implications suggest a risk-off environment as the higher yield pressures the present value of risk and capital rotates towards the greenback for safety.

UK Prime Minister Liz Truss announced her resignation today. A run on British gilts and volatility in GBPUSD has primarily defined her six weeks in office following a failed gamble at expansionary fiscal policy and trickle-down economics

There was stabilisation after the new Chancellor of the Exchequer, Jeremy Hunt, rolled back most of the tax cuts delivered in September's mini-budget. However, all is not well, with the UK government cutting the Energy Price Guarantee from two years to six months.

Last week's real rate price action is insightful and shows a Doji candlestick (red arrows). The real yield attempted to move higher and lower but closed flat for the week. This activity implies uncertainty and indecision. Moreover, this comes when the real rate is overbought (green rectangle).

The pair extended its rally past the 1998 peak on Friday, moving to levels not seen in thirty-two years, after another hot CPI report from the US, which keeps Fed to its aggressive tightening path

Kwasi Kwarteng, Chancellor of the Exchequer, was fired today, less than a month after he delivered his mini-budget on 23rd September. It had a devastating and destabilising market effect, as investors exited British gilts en masse, concerned about the level of deficit funding.

The pair extends its ascent into the sixth straight day and to new 24 year highs, as markets gear up for today’s Fed minutes and Thursday’s US CPI inflation update

Given our previous articles referencing the BoE's efforts to stabilise the UK gilt market, Governor Bailey's comments yesterday were counterproductive. At the Institute of International Finance event in Washington yesterday, he took a tough line that added to the market's volatility.

This resilience is despite further action today by the BoE to stabilise British gilts. The central bank broadened its emergency bond-buying to include inflation-link gilts to keep markets functioning normally.

The pair comes from a poor week and the new one started in similar fashion, amidst Russia-Ukraine escalation and renewed Fed hawkishness, ahead of Thursday’s CPI inflation from the US

The BoE has announced an increase in its daily gilt purchases and will implement measures to ensure calm prevails as its emergency bond-buying programme winds up. The central bank intervened in the bond market after the government's mini-budget sparked a sell-off, threatening the UK's pension sector. The emergency intervention is due to end on Friday, 14 October.