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This Week: GBPUSD to move closer to parity?

GBPUSD kicked off the new trading week by registering a record low, sinking to 1.0350 before paring some of its stunning drop.

This Week: GBPUSD to move closer to parity?

 

This currency pair nicknamed ‘cable’ may hit the parity mark if Fed officials continue with their hawkish rhetoric during their scheduled speeches over the coming days:

 

Monday, September 26

  • EUR: Germany September IFO business climate and expectations
  • EUR: ECB President Christine Lagarde speech
  • USD: Speeches by Boston Fed President Susan Collins, Atlanta Fed President Raphael Bostic, and Cleveland Fed President Loretta Mester

 

Tuesday, September 27

  • CNH: China August industrial profits
  • USD: Speeches by Fed Chair Jerome Powell, Chicago Fed President Charles Evans, St. Louis Fed President James Bullard
  • Brent: OPEC to publish World Oil Outlook

 

Wednesday, September 28

  • AUD: Australia August retail sales
  • EUR: ECB President Christine Lagarde speech
  • US crude: EIA weekly oil inventory report
  • USD: Speeches by San Francisco Fed President Mary Daly, Atlanta Fed President Rafael Bostic, Chicago Fed President Charles Evans

 

Thursday, September 29

  • NZD: New Zealand September consumer confidence
  • AUD: Australia August job vacancies
  • EUR: Germany September CPI, Eurozone September economic confidence
  • USD: US weekly initial jobless claims, 2Q GDP (final)
  • USD: Speeches by Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly
  • Nike quarterly earnings

 

Friday, September 30

  • NZD: New Zealand September consumer confidence
  • JPY: Japan August jobless rate, retail sales, industrial production
  • CNH: China September PMIs
  • EUR: Eurozone August unemployment rate, September inflation
  • GBP: UK 2Q GDP (final)
  • USD: Speeches by Fed Vice Chair Lael Brainard and New York Fed President John Williams
  • Tesla’s AI day

 

The Pound’s sheer decline is driven by a confidence crisis among market participants.

Traders and investors appear to be of the opinion that the recently-announced tax cuts by new Chancellor of the Exchequer, Kwasi Kwarteng, would only worsen the UK economic outlook by ramping up inflationary pressures. Recall that the headline CPI is still hovering around 10% - a 40-year high.

The tax cuts aimed at boosting demand runs counter to the “demand destruction” intended by the Bank of England’s rate hikes.

Furthermore, with such tax cuts being unfunded, it only highlights the UK’s glaring twin deficit.

 

Besides its fiscal woes, support for Sterling is also further eroded by the Bank of England’s reluctance to keep pace with its more aggressive central banking peers.

Recall last week, amid the flurry of central bank meetings last which delivered salvos of supersized hikes of 75 basis points each, the BOE only hiked by 50bp.

 

With all that in mind, calls for parity in GBPUSD are now growing.

Options pricing gives dollar-sterling parity a 56% chance by end of the year.

However, those odds are just at 10% for this week, with markets likely needing more time to assess how much worse things get in the UK before sending GBPUSD to that once-unimaginable mark.

And with the jam-packed slate of Fed speeches due this week (as listed above), all likely to reinforce the US central bank’s intent on sending interest rates higher and keeping them elevated for longer, that could reinforce the stronger-dollar environment, which would only worsen the Pound’s fortunes over the near-term.

 

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