The British pound is slipping nearly 1 percent against the US dollar this morning and is back below the 1.08 level. The dollar, in turn, seems to be strengthening against all major G-10 currencies. The euro is weaker by about 0.7 percent and is quoted at $0.9658 as of 07:54 GMT+3.
S&P futures are unchanged, with the Nasdaq slipping 0.2 percent, while Asian stocks are rebounding from two-year lows after Wednesday's rally on Wall Street. The Hang Seng rose 1.2 percent and the Shanghai Composite rose 0.3 percent, Bloomberg reported. During Wednesday's U.S. session, the Dow Jones rallied 1.88 percent, the S&P 500 went up 1.97 percent and the Nasdaq Composite rose 2.05 percent. These moves came after the Bank of England announced it would buy bonds to stabilize financial markets, causing global bond yields to fall, which in turn could support a broad rally in risky assets. Today, however, investors will have to reassess the actions of the British.
Bank of England from QT to QE
Political tensions are mounting in the UK, with the aim of rolling back the announced tax changes. These have yet to take effect, and in fact have led to a collapse in the British financial market, especially the bond market. The British, with their decisions, came close to causing the collapse of their pension funds through a sharp drop in bond prices. Only the intervention of the Bank of England stabilized the situation. The Bank of England announced Wednesday that it had bought £1.03 billion worth of UK government bonds. The bank received bids to buy gilts worth a total of £2.59 billion. The BoE specified that it would buy "gilts with a residual maturity of more than 20 years in the secondary market. The bond-buying program, funded by the central bank's reserves, will last until October 14, BBN reported.
In addition, the UK government has received a clear warning from the IMF and rating agencies that it is not welcome to loosen fiscal policy, and temporarily monetary policy as well, at a time when the global battle against inflation is underway. The political and financial drama in the UK seems therefore ongoing, and its next chapters are yet to be written.
Source: Conotoxia MT5, GBPUSD, H1
Dollar stronger again
The US currency may be helped by further statements from representatives of the US Federal Reserve. They may be making it clear that no Fed pivot is in question at the moment. Federal Reserve Bank of Chicago President Charles Evans said on Wednesday that the interest rate should reach its peak in March 2023. Saying that the Fed should have started raising rates earlier is "fair," he also noted at an event organized by the London School of Economics. The central bank could have chosen to start earlier by raising interest rates in small steps over a long period of time, or it could have chosen to do what it ultimately did, which was to introduce higher rates more quickly as soon as inflation surged, he explained. The Fed's analysis at the time indicated that the outcome of the two policies would not have been "significantly different," Evans added.
Source: Conotoxia MT5, USDIndex, H4
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Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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