In European trade on Friday (Oct 21), / US fell sharply, temporarily trading at 1.1180, down 0.44 percent.
Ben Broadbent, the deputy governor in charge, said this week that preliminary internal modelling suggested inflation would not need to rise much from its current level of 2.25 percent to be brought under control, after markets thought it would need to rise above 5 percent.
After his remarks, market expectations for a peak in interest rates slipped 30 basis points from last week.
With the growth outlook deteriorating, it is clear that market expectations of a rate rise by the Bank of England are too high, especially in the context of a possible “fiscal orthodoxy” as prime minister, which could represent a slowdown in future rate rises or a surge in the government’s debt service costs.
Benchmark gilts rose and then fell, unable to sustain the gains seen around Truss’s resignation.
The 10-year gilt yield, however, rose to 3.95 percent from 3.78 percent just after the announcement, giving up most of its gains since Sept. 23 and pulling back from a session high above the 4 percent mark.
By midday, stocks had pared gains after rising more than 120 points, or more than 1 percent, to break above the 1.13 mark before paring gains to 0.4 percent at 1.1250, though roughly back to where they were on Sept. 22.
The technical indicators on the GBP/daily chart have yet to confirm the bearish bias and need to be treated with caution.
Therefore, before preparing for any further depreciation, it is prudent to wait for follow-through selling around the overnight low of 1.1170.
GBP/USD is likely to accelerate below 1.1100.
