GBP/USD: Unlikely to bounce higher even if New Chancellor restores confidence – SocGen

New Chancellor Jeremy Hunt will give a statement on fiscal policy today. The aim is to deliver a clear message that stabilises the gilt market and hopefully restores confidence. In the view of Kit Juckes, Chief Global FX Strategist at Société Générale, gilt yields should fall and sterling volatility should melt away.

Sterling volatility should now fall back from crisis levels

“The Conservative Party is still in disarray, but if Mr Hunt gets his party’s backing for policies to tackle the crisis, market confidence will recover. That’s good for gilts, but I can’t see how it send sterling much higher than this.”

“EUR/GBP is back where it was at the end of August and the economic outlook is too bleak to suggest it will fall further.”

“GBP/USD remains a function of EUR/USD as much as anything happening in the UK, and while the euro is rangebound, neither the economic nor the geopolitical backdrop suggest it can bounce back above parity any time soon. 

“All in all, expect both EUR/GBP and USD/GBP volatility to trend lower, but neither euro or sterling to stage a rebound against the dollar.”