Technical Analysis

GBP/USD Jumps After BoE Intervention

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    The pound started the day with losses but has reversed directions and soared in the North American session. is trading at 1.0838, up 0.98%.

    Bank of England Steps Into Calm Markets

    The new Truss government has started off on the left foot, sending the pound to a record low in the process. The trouble began last Friday, as Chancellor Kwarteng’s mini-budget promised tax cuts, despite soaring inflation, which is hovering around 10%. The mini-budget was widely panned and the pound sank like a stone Friday, falling a stunning 3.6%. The pound lost another 1.5% on Monday and dropped to a record low of 1.0359.

    The scathing criticism was not only domestic. The IMF has joined the chorus of boos and attacked the government’s fiscal plans, going as far as calling on the U.K. to “re-evaluate” its tax cuts. Moody’s warned that the plan could jeopardize the U.K.’s credit rating. With the new government’s credibility seriously undermined, it’s no surprise that the pound is taking it on the chin.

    In a dramatic move, the Bank of England has stepped in order to avoid a possible crash in the bond market. There had been speculation that the BoE might deliver an emergency rate hike in order to prop up confidence and the ailing pound. Instead, the BoE said it would unlimited purchases of government bonds of 20 years or longer. This pushed 30-year bonds sharply lower after they had climbed to 24-year high.

    In the U.S., pushed above 4% earlier today, for the first time since 2008. The markets are showing a healthy respect for Fed hawkishness, even after inflation weakened in the past two inflation reports. There is some optimism that the current rate-hike cycle is reaching its end, with Fed member Evans stating that it will be appropriate to slow the pace of tightening at some point. For now, the has momentum, driven by an aggressive Fed and weak risk appetite due to worrisome developments in the Ukraine war, including the sabotage of the Nord Stream pipelines and Russia’s plan to annex parts of Ukraine..

    GBP/USD Technical

    GBP/USD is testing resistance at 1.0742, followed by resistance at 1.1052
    There is support at 1.0644 and 1.0431

    This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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