Pound sharply lower despite BoE intervention
The roller-coaster continues for the British pound, which is down sharply today. In the European session, GBP/USD is trading at 1.0774, down 1.05%.
It has been a remarkable week for the British pound, which has exhibited sharp volatility since Friday, when Chancellor Kwarteng unveiled his mini-budget. The package included unfunded tax cuts, despite weak a weak economy and inflation hovering at 9.9%. The financial package was criticised at home as well as abroad; the International Monetary Fund and US Commerce Secretary Gina Raimondo also panned the plan. Former US Treasury Secretary Lawrence Summers had perhaps the most unkind cut of all, saying that the UK had the worst economic policy of any major country.
The British pound fell 3.6% on Friday and kept falling on Monday, hitting a record low of 1.0359. Bond prices tumbled and the turmoil became so acute that the Bank of England intervened on Wednesday in order to avoid a possible crash in the bond market. The BoE said that the crisis threatened financial stability and purchased just over one billion pounds in securities and will continue purchasing securities every day until October 14th. The bailout could hit over 60 billion pounds. The BoE’s announcement sent bond prices higher and stabilized the bond market. The pound shot up 1.45% on Wednesday, but has reversed directions and is down sharply today.
Prime Minister Truss is under heavy pressure to shelve the financial plan which has caused chaos in the markets, but for now, the government is standing firm and says it won’t back down. Truss and Kwarteng will have to face the music at the Conservative Party’s annual conference next week, and it’s likely we haven’t heard the last word on the mini-budget which has triggered a major financial crisis.
- GBP/USD is testing support at 1.0782. Next, there is support at 1.0644
- There is resistance at 1.1052 and 1.1184