GBP/USD: Risks are skewed to the downside heading into year-end – MUFG

GBP/USD has arleady fully reversed mini-budget sell-off. Nevertheless, economists at MUFG Bank believe that the path of least resistance for the pound tilts to the downside. 

Another volatile week for the pound 

“The ongoing reversal of the government’s tax cut plans is encouraging the UK rate market to scale back expectations for the size of BoE rate hikes. Market participants are now weighing up whether the BoE will deliver a 75 bps or 100 bps hike in November and the expected terminal rate has fallen from just over 6.00% to just below 5.50%.”

“Overall, it promises to be another volatile week for the pound. We continue to believe that risks are more skewed to the downside for the pound especially against the US dollar heading into year-end.”

“The pound has already fully reversed all of the losses following the mini-budget which should limit further upside on the back of further government measures to regain market confidence in the gilt market.”