GBP/USD is now back to levels before the UK government’s fiscal event on 23 September. What are not back to pre-fiscal event levels are the UK’s sovereign credit default swaps (now 45bp vs 32bp) and the 10-year Gilt-Bund spread (200bp vs 155bp). The government’s fiscal reputation has been tarnished and news that the chancellor may not after all bring forward his medium-term fiscal statement leaves sterling vulnerable.
Look out for comments from PM Liz Truss at the Conservative Party conference today. We suspect that the sterling rebound and the dollar correction may have come far enough and could easily see cable reversing to the 1.1200 area.