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Oct 18 - 09:55 AM

GBP: Crisis Averted But Financial Conditions To Remain Tight And Pound To Remain Weak - MUFG

By eFXdata  —  Oct 18 - 09:13 AM

MUFG Research maintains a bearish bias on GBP over the coming weeks.

"The UK government has been able to more fully regain market confidence after it brought forward plans to further tighten fiscal policy encouraged no doubt in part by the BoE’s decision to bring an end to temporary emergency support for the gilt market...Overall, the measures give us more confidence that the crisis of confidence in the gilt market should now ease. However, it is likely that financial conditions will remain tighter than prior to the mini-budget undermining economic growth in the UK. The tightening of fiscal policy including spending cuts makes it more likely that the UK economy will fall into recession," MUFG notes.

"In these circumstances, we are not convinced that the UK’s weak macro fundamentals justify the pound continuing to strengthen once the initial relief rally fades. Similarly, we see the broader US dollar sell-off as just a temporary correction lower while the Fed remains committed to tighter policy and fears over a hard landing for the global economy remain in focus," MUFG adds. 

Source:
MUFG Research/Market Commentary

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