Massive Volatility in GBP As Pound Crashes Across The Board

The main story as traders hit the desks in Europe on Monday is the wild volatility we’re seeing in GBP. On the back of the UK government’s budget announcement on Friday, GBP has collapsed across the board as economic fears grow in line with the huge increase in UK government borrowing outlined in the budget.

GBPUSD has fallen 8% from Friday’s opening price (roughly 900 pips) while GBPJPY has fallen over 7% (roughly 1100 pips). While the sell-off has seen strong buying into today’s lows the near-term outlook for GBP remains highly vulnerable and fears of a move through parity in GBPUSD are now main focus for UK traders.

Key Factors for Today

- USD at highs as risk-aversion takes hold
- GBP sees wild volatility following UK budget
- Italian election results pointing to far-right coalition
- Risk markets plunge amidst recession fears
- JPY leading in FX, risk currencies hurt
- Metals and commodities lower amidst USD rally

Coming Up

- EUR ECB’s Lagarde speaks
- GBP BOE’s Tenreyro speaks
- USD Fed’s Collins & Mester speak

Equities In the Red on Monday

Equities markets are seeing plenty of downside action as we start the new week. With the US Dollar riding at fresh 2022 highs and global recession fears in focus, risk markets are coming under strong selling pressure. Interestingly, while we’re seeing firm selling in US, Asian and European markets, the FTSE has so far remained in the green due to the flash-crash in the Pound which has propped up demand for UK assets.

Italian Election Results Suggesting Far-Right Coalition

In Europe, traders are keeping a close eye as the results of the Italian elections trickle through. Early exit-polls suggest a far-right coalition led by the Brothers of Italy party is the likely outcome. If confirmed, this will mark the most far-right Italian government since Mussolini. However, market impact should be quite contained given that the new government will still be highly reliant on EU Covid payments and therefore unlikely to be rattling the cage much about independence in the near-term.

Saga Due to Report Weaker Earnings Tomorrow

Shares in Saga, the over-50’s insurance specialist, are trading lower today ahead of tomorrow’s earnings report. The company is forecast to report weaker performance over the as it continues to struggle with its post-pandemic recovery. Shares in the company have fallen almost 60% this year with the company struggling to regain ground in key areas, such as its cruise ship division, which were hit hard over the pandemic.

GBP Fighting Back Following Heavy Losses

In FX, the sharp drop in GBP we saw across the Asian session is reversing strongly over early European trading. The key now will be to see whether this move marks a capitulation bottom in GBP and the start of a sustained recovery or if this is simply a dead-cat bounce leading to more losses. Given the concerns around the UK economy and the inflationary impact of the weaker GBP, the latter appears more likely.

JPY Rising on Safe-Haven Demand

JPY and USD have both been stronger at the start of the week given the risk-off tone we are seeing. Falling equities and commodities prices keeping risk-linked currencies pressured to the downside. Looking across today’s data schedule, we have a slew of central bank speakers in Europe, UK and the US to keep an eye on.

Metals & Commodities Struggling With Higher USD

In the metals and commodities space, we’re seeing firm selling across the board. Gold and oil have both broken down to fresh 2022 lows amidst early European trading on Monday as the stronger US Dollar takes a toll. Silver prices are turning lower again also, threatening a resumption of the bear-trend as rising bond yields and falling equities prices hurt sentiment.