Sterling likely to fall below $1 after tax cut

After the U.K. government announced a huge tax cut on Monday, speculators in the options market are taking positions that will lead to the currency falling to $1 or below, according to Bloomberg.

The report said that three-month risk-reversal contracts against the pound are close to the most bearish since 2016, while others indicate a 43% chance it will hit the $1 mark by the end of 2022.

The Bank of England Governor Andrew Bailey tried to calm markets by saying that the central bank won't hesitate to hike rates by as much as necessary to control inflation on Monday.

The report said that the central bank would enforce an emergency rate hike in order to boost the pound.

Price Action: The pound was trading higher against the dollar at $1.0783 on Tuesday. The Invesco CurrencyShares British Pound Sterling Trust FXB is down close to 20% since the beginning of the year.