UK institutions today reopen for business after respecting a period of mourning for the late Queen Elizabeth. It is going to be a busy week for both monetary and fiscal policy. On the former, we look for another 50bp hike from the Bank of England on Thursday. And Friday should see a mini-budget from the new UK chancellor, Kwasi Kwarteng. He has already positioned himself as going for growth and the mini-budget should provide details on the £100bn+ energy support package plus another £30bn+ of tax cuts.
Normally loose fiscal and tight monetary policy would be good for the pound. However, it seems that foreign investors are concerned as to how government support will be financed - with the fear that this will largely come through an additional supply of UK Gilts. Unnerving was also the removal by Chancellor Kwarteng of permanent Treasury Secretary Tom Scholar, which raised doubts about policy orthodoxy.
Cable can easily sink back to 1.1350 and should remain offered this month, while the former resistance level of 0.8720 should now prove support to EUR/GBP as it edges up to 0.8800.
-ING FX Strategy
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