Oct 10, 2022
VOT Research Desk

Key News – Insights and Analysis

The Market Perspective:

Following the BoE’s announcement of additional assistance measures, the GBP/USD exchange rate makes some progress.

Fears of the recession and worries about the UK government’s fiscal plans could be a hindrance.

The USD is supported by aggressive Fed rate rise wagers, which should limit gains.

On the opening day of a new week, the GBP/USD pair resists a recent steep fall from close to the psychological level of 1.1500 and draws some buying. Despite lacking bullish confidence, spot prices rise somewhat throughout the early European session and return over the 1.1100 level.

In order to enhance market function, the Bank of England announces the opening of the Temporary Expanded Collateral Repo Facility (TECRF). In turn, this gives the British pound a slight boost and helps the GBP/USD pair recover more than 50 pip from the 1.1050 area, or the one-week low reached last Friday. Despite this, any significant upward movement continues to appear elusive in light of worries over the UK government’s economic policy and recessionary fears.

On the other hand, despite growing expectations that the Federal Reserve will continue its aggressive rate-hiking cycle to contain inflation, the US dollar remains firm. In point of fact, the markets are anticipating a probability of over 80% that the Fed will move to raise rates by 75 basis points for the fourth meeting in a row in November. The bets were reaffirmed by Friday’s positive US jobs data and the recent hawkish remarks made by several Fed officials.

Aside from this, the GBP/USD pair’s gains are currently constrained by the prevalent risk-off environment, which continues to support the safe-haven greenback. In light of concerns regarding economic headwinds caused by rapidly rising borrowing costs and geopolitical risks, market sentiment remains fragile. Investors’ appetite for riskier assets is tempered by this and tensions over the US-China trade dispute.

The White House recently announced export controls that prevent Chinese companies from purchasing certain semiconductor chips made with US equipment. Concerns that any Chinese retaliation would worsen trade ties between the world’s two largest economies and have deeper economic repercussions caused market participants to become cautious. The GBP/USD pair should remain contained as a result of this.

Monday’s release of major economic data has no impact on the market. Additionally, before placing bullish bets on the GBP/USD pair, traders should exercise caution due to the relatively low volume of trading on Columbus Day in the United States. As a result, spot prices have reached a near-term bottom around 1.1050, so it will be prudent to wait for strong follow-through buying.

Watch the Levels

GBP/USD