Pricing in the options market assumes that the pound will continue to decline until the end of 2022, and will reach parity against the US currency. Currently, the probability of this event is 60%, which is almost twice as much as on Friday (32%).
Earlier today, GBP/USD hit a new record low after the new Chancellor of the Exchequer signaled the possibility of further tax cuts, which increased investors' fears that UK debt will reach unaffordable levels and increase inflation. Currently, GBP/USD is trading at 1.0621, with a decrease of 2.17%. On Friday, GBP/USD fell by 3.6%.
In addition, markets also expect strong GBP/USD turbulence in the next three months: sterling-dollar's implied volatility surging 4.31% to 20.05%. That's fast approaching the high of 20.62% reached during the 2020 pandemic.
The pressure on the pound also continues to come from the divergence of the monetary policy of the Fed and the Bank of England, which is lagging behind in the pace of policy tightening - the interest rate in the US is 3.25% compared with 2.25% in the UK. Meanwhile, inflation in the UK is expected to continue to rise and exceed 10%, putting more pressure on the budgets of households and businesses.