Citi says sterling-dollar parity is possible as UK risks currency crisis

A trader, center, wears a Citigroup jacket while working on the floor of the New York Stock Exchange.

Michael Nagle | Bloomberg | beautiful pictures

LONDON – The UK is at risk of a visible currency crisis pound equal to dollaraccording to analysts at Citi.

The UK government publishes the most Substantial tax cuts For decades on Friday morning, as Finance Minister Kwasi Kwarteng said the Ministry of Finance is targeting the 2.5% growth trend. UK economic growth has been sluggish in recent years, and the Bank of England on Thursday speak it could be in a recession.

However, traders were alarmed at the prospect of the UK increasing its already record-high debt-to-GDP ratio as the country spends billions more to support the economy of households and businesses in the coming years. the context of the European energy crisis, with government bond yields rise with the highest daily rate in more than a decade.

By 4pm London time, Friday, the pound had lost more than 3% against the dollar, which marks a 37-year low of $1.0915. It’s the last time at this level briefly in 1985when it weakens due to rising interest rates in the US

There is now a significant chance for the coins to hit parity for the first time in history, analysts say. Sterling’s all-time low is near $1.05.

Citi’s Vasileios Gkionakis said he expected sterling to trade in a range between $1.05 and $1.10 for the next few months, but the risk to a breakout is lower, directional. parity, has increased.

“We think the UK will find it increasingly difficult to finance this deficit amid a worsening economic backdrop; something has to be given away, and something that will ultimately be the exchange rate. much lower exchange rates,” he said in a research note.

Antoine Bouvet and Chris Turner at Dutch bank ING say forex options are currently pricing a year-end dollar parity opportunity at 17%, up from 6% at the end of June.

“Given that our bias towards the dollar rally is also overextended, we think the market may be undervaluing the parity opportunity,” they said in a note.

The euro was also weaker against the dollar on Friday, down 1.1%, but up 1.8% against the pound to 0.8890.

Stocks tumble as UK announces debt financing tax cuts

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