Can I tell you about: The BoE Intervention
The GBPUSD had been on a significant downtrend (see the downward channel) due to several factors:
- Strong USD, due to hawkish comments and aggressive interest rate policy path.
- Stick inflation in the UK, at record high levels despite the BoE being among the first central banks to hike rates.
- Uncertainty in the UK political environment following the ousting of PM Boris Johnson
- Concerns over the conflict at the Russian-Ukraine border
On the 23rd of September, the price broke strongly from the 1.1215 key support level following the announcement of tax cuts.
The tax cuts (biggest in 50 years), paired with subsidies for households and businesses to cope with a surge in energy prices, were aimed at boosting the flagging U.K. economy amid stubbornly high global inflation and growing economic gloom in Europe.
The market reaction was "worrying" as the government's new strategy relied on investors being willing to lend more to the UK. This saw the GBPUSD crash towards the 1.0360 support level.
On Thursday 28th of September, the BoE took emergency action by undertaking temporary and targeted purchases in the gilt market (buying long-dated UK government bonds) in an attempt to stabilise the market and to calm the turmoil in financial markets amid the collapse in the pound.
Following the intervention, the GBPUSD climbed steadily back towards the 1.1215 price area, reversing the decline for the week.
The question now would be; can the GBPUSD climb higher?
Technically, if the price breaks strongly above the 1.12 resistance area, the GBPUSD could climb towards the next resistance area of 1.1450, which is also the 127% fib expansion level.
Fundamentally, a sustained intervention from the BoE and recovery of the GBPUSD will depend on the HM Treasury to fully indemnify the purchases which are strictly time-limited and to be completed in the next two weeks.
- Strong USD, due to hawkish comments and aggressive interest rate policy path.
- Stick inflation in the UK, at record high levels despite the BoE being among the first central banks to hike rates.
- Uncertainty in the UK political environment following the ousting of PM Boris Johnson
- Concerns over the conflict at the Russian-Ukraine border
On the 23rd of September, the price broke strongly from the 1.1215 key support level following the announcement of tax cuts.
The tax cuts (biggest in 50 years), paired with subsidies for households and businesses to cope with a surge in energy prices, were aimed at boosting the flagging U.K. economy amid stubbornly high global inflation and growing economic gloom in Europe.
The market reaction was "worrying" as the government's new strategy relied on investors being willing to lend more to the UK. This saw the GBPUSD crash towards the 1.0360 support level.
On Thursday 28th of September, the BoE took emergency action by undertaking temporary and targeted purchases in the gilt market (buying long-dated UK government bonds) in an attempt to stabilise the market and to calm the turmoil in financial markets amid the collapse in the pound.
Following the intervention, the GBPUSD climbed steadily back towards the 1.1215 price area, reversing the decline for the week.
The question now would be; can the GBPUSD climb higher?
Technically, if the price breaks strongly above the 1.12 resistance area, the GBPUSD could climb towards the next resistance area of 1.1450, which is also the 127% fib expansion level.
Fundamentally, a sustained intervention from the BoE and recovery of the GBPUSD will depend on the HM Treasury to fully indemnify the purchases which are strictly time-limited and to be completed in the next two weeks.
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