In early trading on Wednesday, sterling turned to gains after a Financial Times report appeared to back off comments from Bank of England Governor Andrew Bailey, who said the British central bank was ready to halt its support for the market this week. Accordingly, the British currency reversed a loss of 0.4% to trade 0.2% higher in early trading in London, the GBP/USD currency pair, stable around the 1.1060 level at the time of writing the analysis, bouncing back from the 1.0923 support level in the same session.
The Financial Times said the Bank of England has specifically indicated to bankers that it may extend its bond-buying program beyond Friday's deadline, although it was not clear from the report when that guidance was given. Bailey told pension funds on Tuesday that they had only "three days" to sort out their liquidity positions before emergency bond purchases were halted. His comments came after the British bond markets closed, but sent Treasury yields and the British pound to a two-week low.
Bailey is putting the BOE's credibility on the line with a pledge to end gold buying.
Commenting on this, Shaun Callow, Senior FX Analyst at Westpac Banking Corp. in Sydney. “Sterling continues to look like selling on rallies against the strong dollar, heading back to $1.08 and below in the coming sessions.”
The left signal bushing was set for another choppy session. The Bank of England's unlimited debt purchase plan announced on September 28 turned the market around, but the benchmark 10-year bond has almost wiped out the gains since then. According to the Financial Times, the Bank of England will decide whether to extend the facility on Thursday or Friday. The newspaper added that the British central bank is assessing whether affected investment managers driven by commitments have built up sufficient cash reserves to meet margin requests.
Kiyoshi Ishigani, an analyst at Mitsubishi UFJ Kokusai Asset Management Co., said: In Tokyo: "It would have been better if the Bank of England continued to conduct support." "The 10-year Treasury yield could rise to 5% early this month" from 4.44% on Tuesday, he added.
The US dollar had strengthened against the British pound and other major currencies on Wednesday before the release of the report as renewed concern over asset selling in the UK increased demand for safe-haven assets. Simon Harvey, head of FX analysis at Monex Europe, said that if the Bank of England sticks to the expiration date on Friday, the pound bears will make their way. "Their tough stance on withdrawing the support mechanism does not serve the pound sterling."
GBP/USD forecast today:
- The bears' control over the direction of the GBP/USD currency pair is getting stronger.
- As mentioned before, the Bank of England's strict policies will remain the only way to prevent a further collapse of the pound sterling in the markets, as the dollar is still the top currencies in this file.
- The Federal Reserve is determined to continue tightening its policy no matter what, until record US inflation is contained.
- The nearest targets for the current trend are the support levels 1.0985 and 1.0880, respectively, which are sufficient to push the technical indicators towards oversold levels.
On the upside, bulls move towards the resistance levels 1.1375 and 1.1500 respectively to breach the current downtrend. Today, the British economy growth rate will be announced, and the dollar awaits the contents of the minutes of the last meeting of the US Federal Reserve.
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