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British Pound Forecast: Bank of England Ramps Up Bond Purchase Limit, GBP/USD Slips

By Justin Mcqueen

11:45, 10 October 2022

Bank of England Building. Source: Gettyimages

Bank of England Announces Additional Liquidity Measures

The Bank of England has announced additional measures to support market functioning and reduce investor angst as the expiration of the Bank’s temporary backstop nears. In terms of the latest measures, the Bank stated that it will double the limit of gilts it is willing to purchase to GBP 10bln from GBP 5bln and will launch a Temporary Expanded Collateral Repo Facility, which will ease liquidity pressures facing LDI funds, running beyond the end of this week. As previously announced, the Bank reaffirmed that they plan to cease all bond purchases this Friday. 

This looks to be an attempt by the Bank of England to get ahead of market pressures amid reports that UK Pension Funds would be selling assets in the lead-up to the BoE’s deadline. However, there still remains a concern about what happens after October 14th, particularly with gilt yields retracing over half the initial BoE-inspired drop. Alongside this, it is also up for debate whether these new measures will noticeably change market functioning. Keep in mind that the BoE has only made GBP 5bln worth of bond purchases from the GBP 65bln pledged. Therefore, if purchases remain low, this is unlikely to move the needle for markets. 

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UK 30YR Gilt Yield Chart: Daily Time Frame

30Y Gilt Yield. Photo: Source: Tradingview

GBP/USD Drifting Lower

As stated in the weekly outlook, the path of least resistance remains to the downside for GBP/USD with risks geared for a break below 1.1000. In turn, the bias remains a fade on rallies for Cable. Near-term support is situated at 1.1025 where a break below opens the door towards 1.0880-1.0920. 


1.08 Price
-0.230% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0003%
Overnight fee time 22:00 (UTC)
Spread 0.00006


0.66 Price
-0.620% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 22:00 (UTC)
Spread 0.00006


0.66 Price
-0.620% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 22:00 (UTC)
Spread 0.00006


1.26 Price
-0.120% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 22:00 (UTC)
Spread 0.00013

GBP/USD Chart: Daily Time Frame

GBP/USD Chart. Photo: Source: Tradingview

This week, we will be hearing more from the BoE with a plethora of speakers scheduled, where market participants will be looking to gauge the MPC’s appetite for aggressive tightening in light of what has been priced in by markets, which as it stands is currently 110bps worth of tightening by the November meeting. To me, this remains far too aggressive for the BoE and with a terminal rate seen near 100bps above the Fed’s terminal rate, GBP/USD remains vulnerable to a hawkish disappointment.


Oct 11: Jon Cunliffe (1900BST), Andrew Bailey (1935BST)
Oct 12: Jonathan Haskel (0900BST), Huw Pill (1235BST), Catherine Mann (1800BST)
Oct 13: Catherine Mann (1200BST)

Markets in this article

1.26086 USD
-0.00154 -0.120%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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