The British pound is selling off violently – a bit like an emerging market currency – after the government said it would borrow heavily to fund tax cuts and energy price subsidies. In a dramatic pivot away from long-standing fiscal orthodoxy, Chancellor of the Exchequer Kwasi Kwarteng said the United Kingdom would cut income, property, and dividend taxes, abandon limits on banker bonuses, and pour tens of billions of pounds into protecting households from rising gas and electricity prices. Gilt yields jumped by more than a third of a percentage point as investors braced for renewed inflation pressures and worried about a deterioration in the country’s international balance of payments.

But the pound is not alone in losing altitude against the greenback. The most closely-watched dollar index – the DXY – gained another 0.6 percent overnight, sending the Aussie, Kiwi, and Canadian dollar tumbling, and pushing the euro toward multi-decade lows.

US equity futures are setting up for a sharp drop at the open, and 10-year Treasury yields are knocking on the highest levels in more than a decade. The most important indicator in finance is pushing 3.8 percent, and remains deeply inverted relative to the two-year, which is pushing above 4.22 percent as investors bet the Federal Reserve’s tightening campaign will push the economy into a downturn.

Both global oil benchmarks are down more than 3 percent as the dollar’s rampage hurts global demand expectations and numeraire effects impact prices.

China’s yuan is flirting with the bottom end of its trading band, threatening to push through the psychologically-important 7.2 threshold against the dollar as the central bank’s half-hearted intervention efforts fail to offset wider momentum in the greenback.

The Japanese yen is, uniquely and unusually, an outperformer, up roughly 0.35 percent overnight after yesterday’s 1.2 percent gain as traders dodge intervention efforts from the central bank. With the Bank of Japan and Ministry of Finance working to reduce volatility by squeezing out speculative short positions, further buying activity is likely to come at unpredictable intervals in coming days and weeks.

No major US economic data releases are scheduled for today.

Falling gasoline prices likely drove Canadian retail sales down by 2 percent in July, aligning with estimates previously published by the national statistics agency. Preliminary numbers for August could show further softness, reinforcing expectations of a slowdown in the ridiculously-indebted Canadian economy as rates climb and purchasing power ebbs.

Karl Schamotta, Chief Market Strategist