The pound is sent into the ground during thin Asian trade

The pound was broadly (and aggressively) lower during Asian trade
CME halted trading of GBP futures
GBP/USD touched a record low
Combination of the UK’s mini budget and flight to the dollar weigh on sterling

The British pound was already facing heavy selling pressure on Friday when the UK’s new chancellor unveiled his new mini-budget. The plan has been perceived as a tax cut for the rich alongside higher levels of debt, with one former treasury minister calling Kwasi Kwarteng’s budget a “high-risk gamble”. The week closed with GBP/USD falling to just shy of its all-time low set in 1985. And that level did not last very long.

In today’s Asian session we have seen an aggressive selloff for the British pound, which has sent GBP/USD to a fresh record low. Currently down around -2.4%, its within its fifth consecutive down day, which includes a -3.6% decline on Friday. Such levels of volatility have not been seen since March 2020, and not restricted to GBP/USD.

It’s currently the most volatile month for GBP/JPY since November 2016 (Trump nominated president) and the most bearish month since June 2016 (Brexit). EUR/GBP has accelerated nearly 4% higher and sliced through 0.9000 like a hot knife through butter. And with higher levels of volatility come higher levels of implied volatility (IV). Overnight IV for GBP/USD has risen to an annualised rate of 34.45%, which is its highest level since December 2019.

GBP/USD daily chart

We can see on the daily chart that bearish momentum has accelerated since Friday, and that it sliced through the previous all-time low set in 1985. Moreover, it also sliced through the 1.05 and 1.04 handles like butter before rebounding back above the 1985 low, indicating that some large stops were triggered. Prices are now meandering around the 1985 low and seeking its next directional move.

The question now is whether we see a follow-through in the European and US session and hurtle towards parity - a level which seemed an impossibility just a few months ago. But if we see another day’s trade like we did today, GBP/USD will be trading firmly beneath it.

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.