The GBP/USD Is Back in the Red After the BoE Fueled Wednesday Rally
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According to the announcement,
“The Bank will carry out purchases of long-dated gilts in a temporary and targeted way. The purpose of these purchases is to restore orderly market conditions.”
The Bank added,
“Given current market conditions, the Bank stands ready to purchase conventional gilts with a residual maturity of more than 20 years in the secondary market, initially at a rate of up to £5 billion per auction. These parameters will be kept under review in light of prevailing market conditions.”
The first auction took place on Wednesday, and subsequent auctions will happen daily until October 14, 2022.
Market Reaction to the BoE Intervention Was Ultimately Bullish
On Wednesday, the GBP/USD pair rallied by 1.45% to end the session at $1.08879. The Pound had tumbled to a low of $1.05381 before surging to a day high of $1.09160. However, this morning, the GBP/USD pair was on the back foot early in the Asian session, falling by 0.33% to $1.08520.
While the purchase of longer-dated gilts delivered order, market concerns over the UK Government’s mini-budget and the implications to inflation and monetary policy remain. On Tuesday, BoE Chief Economist Huw Pill said that the BoE would wait until the November MPC meeting to deliver a policy response to the mini-budget.
However, market disorder forced the Bank into action.
Beyond the Pound, market reaction to the Bank of England intervention was evident across the asset classes.
On Wednesday, the NASDAQ 100 rallied by 2.05%, with the Dow and the S&P500 ending the day with gains of 1.88% and 1.97%, respectively. The US futures had been in negative territory through the European session before the market response to the BoE move.
The European markets also bounced back from heavy losses, with the DAX30 rising by 0.36% and the FTSE100 ending the day up 0.30%. However, the gains were modest, with recession jitters and hawkish Fed chatter pegging the majors back on the day.
Elsewhere, the crypto market recoupled with the US equity markets. The crypto market had briefly decoupled in response to the Fed’s rate hike and FOMC projections.
Recovering from an early morning slide to a Wednesday low of $865.4 billion, the crypto market cap is currently up $14.1 billion to $910.0 billion.
Early in the Wednesday session, news of Apple Inc. (AAPL) pulling plans to ramp up production of the new iPhone 14 product suite had sent riskier assets into the deep red.
Looking at the Asian markets this morning, the risk-on sentiment from the US session has failed to provide support. At the time of writing, the ASX200 was down 0.53%, with the NASDAQ 100 Mini down 16 points.
The Bank of England will need to do more to restore confidence in the Pound. Hawkish central bank chatter will also remain a headwind for riskier assets. Warnings from the likes of Apple Inc of weakening demand will continue to add to the market angst.