GBP/USD fell on Thursday, sliding from its early European high at 1.1958 after UK finance minister Jeremy Hunt outlined tax increases and tighter public spending, which are expected to lengthen the UK recession in 2023 and put downward pressure on sterling.
GBP/USD slid to 1.1765 after the austere budget before bouncing near 1.18.
Though the tenor of the autumn statement was as expected, the reaction hints at traders' concerns that tax hikes and budget cuts amid 41-year high UK inflation will hurt the UK economy.
Rate markets are pricing in 157bp of rate hikes to a peak of 4.59% by August 2023 as the BoE attacks inflation, adding to downward pressure on the economy.
After peaking in mid-2023 UK rates are seen falling slowly and steadily in H2 2023 and beyond.
Thursday's GBP/USD drubbing was much less severe than the pound and gilts reaction to the prior "mini-budget," which sent UK yields higher and cable to all-time lows.
The test for the new government will be how they navigate the UK's inflation-recession conundrum.
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