The UK government announced a budget showing that the UK plans to significantly increase the national debt, which triggered a sell-off of UK bonds and sterling. However, Bank of America believes that the volatility in the pound bond and foreign exchange markets may gradually dissipate.

Kamal Sharma, a foreign exchange analyst at Bank of America, said that the foreign exchange market is trying to deal with the problem of how to trade sterling against the background of rising UK treasury bond bond yields.

The budget proposal did not receive a positive response from the bond market. The yield of British treasury bond bonds rose, the two-year yield rose almost 20 basis points, and the 10-year yield rose 15 basis points. Analysts warn that this may indicate that the Chancellor of the Exchequer has overestimated the market's demand for absorbing more UK sovereign debt issuances.

Sharma mentioned, 'Although fiscal stimulus has exceeded expectations, forcing the market to reassess the Bank of England's loose outlook, we do not underestimate the quantity of debt issuance. However, we believe that current conditions are not sufficient to make it a substantial driving force affecting the pound.'.

Therefore, Bank of America remains optimistic about the pound and expects the euro to weaken against the pound and the pound to rise against the Swiss franc before the end of the year.