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Oct 20 - 09:55 AM

GBP: Vulnerable To Further Weakness As The Gilt Market Becomes More Stable - MUFG

By eFXdata  —  Oct 20 - 09:00 AM

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

"The pound initially staged a relief rally when the government announced plans at start of this week for a bigger tightening of fiscal policy but it has since quickly reversed most of those gains. It supports our view that regaining confidence in the UK public finances is not sufficient on its own to trigger a more sustained rebound for the pound. We still believe that the pound is vulnerable to further weakness now that the gilt market is becoming more stable again," MUFG notes. 

"Tighter fiscal policy will be less supportive for growth with the UK economy already facing a high risk of falling into recession, and while financing conditions are improving they are likely to remain tighter than pre-mini budget. There is now less pressure as well on the BoE to raise rates as much as priced into the UK rate market (>5.00%) which will lead to some disappointment and pound weakness," MUFG adds. 

Source:
MUFG Research/Market Commentary

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