Chances of GBPUSD parity has risen to 60%

It seems like the pound sterling is about to drop towards parity against the U.S. dollar, proceeding from option market prices.

GBP implied volatility assumes the currency pair hitting 1.00 by the year-end (based on spot trading at 1.0552) with a 60% chance, while Friday’s probability suggested only 32%. GBPUSD fell to a record low of 1.0350 Monday as for Asian trading sessions. The event followed a Kwasi Kwarteng’s statement, noting further tax cuts are possible. 

Moreover, markets are seeing extraordinary turbulence on the way, with implied volatility hiking another 4.31 percentage points to 20.05% over the past three months. This figure is fast approaching a 20.62% maximum, attained during the 2020 pandemic. 

These steps have been taken as the UK government declared Friday its most massive tax reduction package since 1972. The move, in fact, prompts fears from investors and analysts about pushing the country's debt higher, which could trigger the recession. 

The pound sterling has been already pressed after the BoE’s monetary hike by 50 basis-points, compared to a 75 basis-point hike from the Fed. Negative sentiments towards the pound have doubled by the possible UK inflation that is forecasted to peak above 10%. Record low consumer confidence and survey data suggesting both manufacturing and services sectors are in decline, also come into play.