Pepperstone logo
Pepperstone logo
  • Ways to trade
    • Spread betting

      Tax-free trading on price moves (UK only)

    • CFD trading

      Trade global markets without owning the asset

    • Trading accounts
    • Demo account
    • Our costs
    • Risk management
    • CFD calculator
  • About us
    • How does Pepperstone make money?

      Learn how we stay transparent

    • Premium clients

      Perks and support for high-volume traders

    • Professional traders

      Qualified professional traders can apply for a Pepperstone professional account, not subject to regulatory product intervention measures.

    • Our history
    • Leadership team
  • Trading platforms
    • TradingView

      Chart and trade in one platform

    • MetaTrader 5

      Advanced multi-asset trading tools

    • Pepperstone WebTrader
    • MetaTrader 4
    • cTrader
    • Mobile apps
    • Trading tools
  • Markets
    • Forex

      60+ currency pairs with tight spreads

    • Commodities

      Trade gold, oil, and more

    • Shares
    • Indices
    • ETFs
  • Market analysis
    • Meet the analysts

      Expert insights from our team

    • Navigating markets

      Articles and videos on key markets

    • The Daily Fix

      Daily market wrap and updates

    • Spread betting

      Tax-free trading on price moves (UK only)

    • CFD trading

      Trade global markets without owning the asset

    • Trading accounts
    • Demo account
    • Our costs
    • Risk management
    • CFD calculator
    • How does Pepperstone make money?

      Learn how we stay transparent

    • Premium clients

      Perks and support for high-volume traders

    • Professional traders

      Qualified professional traders can apply for a Pepperstone professional account, not subject to regulatory product intervention measures.

    • Our history
    • Leadership team
    • TradingView

      Chart and trade in one platform

    • MetaTrader 5

      Advanced multi-asset trading tools

    • Pepperstone WebTrader
    • MetaTrader 4
    • cTrader
    • Mobile apps
    • Trading tools
    • Forex

      60+ currency pairs with tight spreads

    • Commodities

      Trade gold, oil, and more

    • Shares
    • Indices
    • ETFs
    • Meet the analysts

      Expert insights from our team

    • Navigating markets

      Articles and videos on key markets

    • The Daily Fix

      Daily market wrap and updates

GBP

GBP trader - The week where UK politics wrestled control from the Fed

Chris Weston
Chris Weston
Head of Research
16 Oct 2022
Share

UK politics commands the international spotlight from time to time and that time is now. Yet, while we fraternise over Fed policy and how high the Fed could take the fed funds rate into 2023, UK politics and the impact on the UK gilt (bond) market and the GBP is firmly front and centre – the connection between British politics and the capital markets will almost certainly result in increased volatility for the GBP this week.

The last few weeks have been one which has not only captivated the world’s financial markets but could be a case study for those bright academics studying at Oxbridge, keen for a future position in the cabinet, on just how mighty the markets can be – and of course, how not to implement new fiscal policies.

Truss’s time as PM seems to be slipping by the day, and the weekend press is alive with speculation of a revolt that could soon see 1922 Committee head Graham Brady giving Truss the nod to step down. Naturally, Rishi Sunak is feeling his time to lead is fast approaching and his view that Truss’s tax policies would cause wild gyrations in financial markets have been vindicated and greatly enhanced his brand. Further speculation that Defence minister Ben Wallace may be in the running as a future PM and is also doing the rounds.

Truss is moving away from the agenda to spend and talk of “austerity” is becoming ever louder. After last week’s call from the Institute of Fiscal Studies that the UK is in the hole for around £60b if the tax cuts go ahead without massive adjustments to spending is one that has been fully acknowledged and the sums are there for all to see - Truss’s credibility is shot to pieces, and uncertainty is the short-term dynamic that will further rattle UK financial markets.

While a change of guard is heavily debated, it won’t happen overnight. The question in the near term is whether Jeremy Hunt can win over the capital markets. Hunt and BoE Bailey seem to have bridged some gaps, which is a GBP positive – yet, while Hunt is well respected within party ranks, the consensus position is that Hunt is facing a true uphill battle and even if the remaining tax cuts are rolled off then the Truss govt will also have to cut spending and that will win her even fewer friends, at a time when her approval rating is at rock bottom.

The Sunday papers are already detailing that we’re to hear of further U-turns and a repel of Truss’ ‘mini budget’, with a formal announcement that the planned reduction to the basic rate of income tax will be pushed out by 12 months – more measures should be announced through the week.

Preview

In a world where we analyse the distribution of outcomes in markets, unless we get a true risk on vibe through markets, lifting equities higher, then rallies in GBPUD will likely be sold and over the short-term. Subsequently, the path of least resistance for the GBP is, therefore, lower, with EURGBP longs likely getting a strong showing as traders look to take the USD out of the equation.

Preview

Hunt seems to have found a friend in BoE gov Andrew Bailey, but the markets may take their pound of flesh and go after something more substantial – they want to feel real credibility. They want a firm government that truly understands the balance between fiscal policy, monetary policy, and government issuance – A Truss/Hunt combo doesn’t quite cut the mustard.

With the BoE’s temporary bond-buying program out of action – for now – we watch the UK gilt market reaction, and any rection that pushes UK 30-year gilts towards 5% and above. Margin FX traders will get their say before the UK bond market opens and early signs are they are covering GBP shorts – I sit in the camp that the picture remains grim, and traders will fade strength into 1.1350/80. However, an open mind is always advantageous when dealing with flows around the interpretation of politics and markets.

It’s another big week for markets – the UK bond market will be front and centre – judging the link between politics and markets is always a struggle but where do you see the balance of risk?

Aside from the above market consideration, traders will need to navigate -

  • UK CPI (Wed)- the market expects no change at 9.9% - above 10% and it could get lively in the GBP
  • EU CPI (Wed) – a big jump expected to 10% - we also get a raft of ECB speakers too and ahead of the ECB meeting (27 Oct) we can see the market pricing a punchy 75bp hike at this meeting
  • NZ CPI (18 Oct - 08:45 AEDT) – the market expects CPI to fall to 6.5% from 7.3% - could this set a trend of firmly lower inflation reads in G10 margin FX countries?
  • China Q3 GDP and industrial production (18 Oct at 1pm) – the market expects Q3 GDP to come in at 3.5% - a solid rise from the Q2 pace of 0.4%.
  • Aussie employment (Thurs at 11:30 AEDT) – 25k jobs are expected to have been with the unemployment rate unchanged at 3.5% - Hard to see a number that changes the markets view of a 25bp hike in the November RBA meeting.
  • No tier 1 US data – we do get 9 different Fed speakers and their views could move markets – the data suggests they should all be hawkish.
  • US earnings – 15% of the S&P500 report – including Netflix, IBM, and Tesla

Related articles

Trader thoughts - testing big levels in EURUSD, EURAUD and gold

Trader thoughts - testing big levels in EURUSD, EURAUD and gold

EUR
GBP trader - G10 FX wildchild is behaving but for how long

GBP trader - G10 FX wildchild is behaving but for how long

GBP

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to trade

  • Pricing
  • Trading accounts
  • Pro
  • Premium Clients
  • Active Trader program
  • Refer a friend
  • Trading hours

Platforms

  • Trading Platforms
  • Trading tools

Markets & Symbols

  • Forex
  • Shares
  • ETFs
  • Indices
  • Commodities
  • Currency indices
  • Cryptocurrencies
  • CFD Forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Meet the analysts

Learn to Trade

  • Trading Guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
1300 033 375
Level 16, Tower One, 727 Colins Street
Melbourne, VIC Australia 3008
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Whistleblower Policy
  • Sitemap

© 2025 Pepperstone Group Limited

Risk Warning: Trading CFDs and margin FX is risky. It isn't suitable for everyone and if you are a professional client, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your personal objectives, financial circumstances, or needs. You should consider whether you’re part of our target market by reviewing our TMD, and read our PDS and other legal documents to ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice if necessary.

Pepperstone Group Limited is located at Level 16, Tower One, 727 Collins Street, Melbourne, VIC 3008, Australia and is licensed and regulated by the Australian Securities and Investments Commission.

The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

© 2024 Pepperstone Group Limited | ACN 147 055 703 | AFSL No.414530