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 FOREX.com

Follow these easy steps to start trading with FOREX.com today:

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor