Home Daily Commentaries Bank of England perform drastic U-turn on Gilt purchases

Bank of England perform drastic U-turn on Gilt purchases

Thursday 29 September, 2022

Daily Currency Update

The Bank of England have performed a drastic U-turn in policy by agreeing to renew purchases of Gilts to stabilise the market. With this, Sterling had one of its best performances in the last month in yesterday afternoon's trading session. Up until yesterday, the central bank had flipped its stance over the last few years by beginning a programme of Quantitative tightening, which involved reducing its balance sheet. This was part of the reason Sterling was under a lot of pressure. This U-turn could now provide significant support for the pound if it supports the Gilt market and brings yields back down again, reducing the cost of borrowing for the UK government during a time when it has to rely on debt to supporting spending plans and tax cuts. The Bank of England have fallen short from an interest rate hike perspective, and it doesn't look like they perform any type of emergency hike.

Liz Truss and Kwasi Kwarteng seem to be resisting calls to perform a U-turn of their own on their plans to slash taxes and increase spending. The IMF gave stark warnings about the UK government's fiscal plans, but for now, the pair remain steadfast that their plans will get the UK out of the current situation. This kind of rhetoric continues to provide down pressure for the pound, and leaves the currency vulnerable.

Key Movers

Ongoing concerns remain about gas supply into Europe, as speculation is rife that the damage to the Nord Stream gas supply piping was an act of sabotage. It maybe weeks before investigators can get close enough to the damage to assess the causes, as the methane being released is highly flammable and dangerous at the moment. However, any further rhetoric around sabotage will do little to dampen global risk aversion and the US dollar strengthening.

Focus today lies with US GDP and unemployment data. This could provide a precursor for what the Federal Reserve does next in terms of interest rate hikes. Strong postings here will support the rhetoric of the Fed continuing to raise rates aggressively to control inflation, which could further support the US dollar.

Expected Ranges

  • GBP/USD: 1.0670 - 1.0875 ▼
  • GBP/EUR: 1.1025 - 1.1345 ▼
  • GBP/AUD: 1.6650 - 1.6825 ▼
  • EUR/USD: 0.9570 - -3.016 ▲