Sunak has been voted in on a ticket of fiscal rectitude which may be good for gilts, but less good for sterling. True, the UK's sovereign risk has been re-priced lower (e.g. the UK's 5-year credit default swap trading back to 32bp from 52bp), but the prospective policy mix of tighter fiscal/less tight than thought previously, monetary policy looks to be sterling negative. After all, sterling is traded as a growth currency.
Clearly, 31 October is going to be another massive day for UK financial markets as Sunak/Hunt present their fiscal fix. But backing the dollar as we do, we doubt GBP/USD needs to trade above 1.15 and retain sub 1.10 targets for later in the year. EUR/GBP to trace out a 0.8650-0.8800 range for the time being. - ING FX Strategy
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