Pound highly volatile as BoE intervenes in bond market

Philip McHugh September 29th 2022 - 2 minute read

Trade in the Pound remain highly erratic on Wednesday as the Bank of England (BoE) announced an intervention in the bond market.

Sterling continues to trade in a wide range so far this morning, with GBP/EUR ticking up to €1.1185, while GBP/USD dips to $1.0814. GBP/CAD has accelerated to C$1.4818, while GBP/AUD and GBP/NZD climb to AU$1.6717 and NZ$1.9045, respectively.

Coming up, will a spike in German inflation propel the euro sharply higher today?

What’s been happening?

The pound continued to fluctuate wildly yesterday, with an initial move lower coming in the wake of a statement from the International Monetary Fund (IMF) in which it criticised the government’s plans for massive tax cuts.

The BoE attempted to restore ‘orderly market conditions’ by announcing it will intervene in bond markets, with a temporary commitment to purchase government bonds.

The BoE’s announcement triggered another bout of volatility in the pound, with the GBP/USD exchange rate striking as low as $1.04, before rebounding to around $1.08.

The US dollar was supported by a prevailing risk-off mood on Wednesday, with heightened volatility in the currency market prompting investors to favour the safe-haven currency.

Meanwhile, the euro strengthened yesterday after European Central Bank (ECB) President Christine Lagarde signalled the ECB will continue to hike interest rates for the foreseeable future.

What’s coming up?

Looking ahead, the ongoing turmoil over the UK’s economic policy may continue to rock the pound today.

With this in mind GBP investors are likely to keep an eye out for a speech from the BoE’s Dave Ramsden. If the policymaker hints at a further invention from the bank, we could see the Sterling infused with fresh volatility.

The highlight of today’s data calendar will be the publication of Germany’s consumer price index. Will a sharp jump in inflation this month turbocharge ECB rate hike bets and underpin the euro?

Also potentially influencing EUR exchange rates will be the Eurozone’s latest economic sentiment index, with another slump in sentiment this month potentially limiting the single currency’s upside potential today.

For USD investors the focus today will be on the latest US GDP figures. The final estimate for Q2 growth could buoy the US dollar if quarter on quarter growth is revised higher again.

Written by
Philip McHugh

Select a topic: