GBP/USD Breaks 1.26 As Risk-off Tensions Accelerate

The GBP/USD pair has dumped on Tuesday in widespread risk-off, breaking below 1.26 the figure in a fresh bear-cycle low for 2022. A number of risk-off factors are being built into the price, from lower growth forecasts for the global economy, China’s covid spread and the contagion risks associated with the Ukraine crisis.

The US dollar (DXY) was up for a fourth straight day on Tuesday, hitting its highest level since March 2020, and is now up nearly 7% on the year.

Meanwhile, the Chicago Board of Options Exchange Market Volatility Index, or VIX, a measure of implied volatility based on the prices of a basket of S&P 500 Index options with 30 days to expiration, surged more than 16% to 31.78.

The Dow Jones Industrial Average has slumped 1.69% to 33,392 the low with the S&P 500 down 1.9% to 4,200 and the Nasdaq Composite 2.67% lower at 13,099.

Bond yields eased ahead of next week’s meeting of the Federal Reserve’s policy meeting where traders are in anticipation that the meeting will end with an interest-rate hike of up to 50 basis points. The yield on the US 10-year note was making a fresh low of 2.726%. Domestically, the sterling has been pressured of late by a weak economic outlook and less hawkish Bank of England expectations that are concerned about risks of a possible recession.

Data released on Friday showed sliding retail sales and consumer confidence approaching all-time lows. Additionally, Brexit risks are back at the fore. Prime Minister Boris Johnson said last Friday that the nation does not rule out taking further steps to address problems in Northern Ireland caused by post-Brexit arrangements.

A political crisis as lawmakers triggered an investigation into whether prime minister Boris Johnson had misled parliament over Downing Street parties during lockdown is also simmering away in the background.