USD declines as British pound and DAX 40 gain from policy changes increased GBP/USD

Oct 18, 2022
VOT Research Desk

Market Analytics and Considerations

As a result of policy changes and corrections, the US dollar weakened today.

With the DAX 40 expected to increase its gains, equity markets reignited optimism for better times.

The UK government and BoE changed their policies, which increased the GBP/USD.

The DAX 40 has benefited from market sentiment that has seen growth and commodity-linked currencies gain, while the US Dollar has weakened across the board. Francois Villeroy de Galhau of the European Central Bank (ECB) stated in an interview with The Financial Times (FT) that once the deposit rate reaches 2%, further tightening may slow. Additionally, favorable weather and the accumulation of inventory ahead of schedule for the upcoming northern winter in the US and EU have contributed to lower natural gas prices. With the WTI futures contract above US$ 85 bbl, crude oil remains steady.

Equity futures indicate that European bourses are all set for another positive day, with the DAX 40 anticipating gains of more than one percent. The change in UK fiscal policy that the new Chancellor of the Exchequer, Jeremy Hunt, announced yesterday was the result of a healthy increase in risk appetite. The 30-year Gilt yield has returned below 4.40 percent, allaying bond market fears that the planned tax cuts will be scrapped. GBP/USD is approaching 1.1400, where it was prior to the mini budget.

The FT reported that the Bank of England may delay quantitative tightening (QT), which further boosted sentiment. With a number of companies announcing positive earnings, US stocks ended the day in the green. The Bank of America released positive results, pointing to the continued robustness of consumer spending, which may pique the Fed’s interest.

To begin the North American cash session, futures indicate another rise. The scheduled Tuesday release of a number of significant Chinese data has been postponed to an unknown time. The delay has been attributed to the Communist Party Congress. A higher-than-expected CPI resulted in a rally in the New Zealand dollar, which increased bets on additional RBNZ jumbo hikes.

Technical View of GBP/USD

The GBP/USD pair is testing breakpoint resistance in the 1.1405–1.1414 range. A test of potential resistance at 1.1496 may occur if the price moves above that level . The most recent rally has broken through the simple moving averages (SMAs) of 10 and 21 days, which may indicate that bullish momentum may continue in the near future. The previous lows of 1.0924 and 1.0354 may serve as support.

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