GBP/USD fluctuates around 1.0750 as the BoE’s intervention in the bond markets easied worries

The GBP/USD recovered some ground as the North American session progressed, switching to positive territory amidst the Bank of England’s (BoE) efforts to cap the fixed income market, buying long mature bonds, as traders’ confidence in the new UK government seems to falter.

At the time of writing, the GBP/USD is trading at 1.0748, above its opening price amidst a volatile trading session, after hitting a daily high/low of 1.0837/1.0537 as concerns over the UK economy increased.

The Bank of England entered the bond market on Wednesday to calm the markets, committing to buy GBP 65 Billion of long-dated gilts following the new Primer Minister Liz Truss’s “mini-budget” release, plagued with substantial tax cuts, aimed to stimulate the economy. At the same time, the BoE postponed the beginning of the Quantitative Tightening program for the end of October.

The result of the BoE’s intervention helped to drop yields in the 30-year bond rate falling 100 bps or 1 one percent, its most significant drop dating back to 1992. At the same time, the GBP/USD has recovered some ground so far, though it would likely remain fragile unless the government calms investors.

Elsewhere, the International Monetary Fund (IMF) expressed that the new UK government plan would likely increase inequality in the UK and could undermine the current monetary policy. Due to large inflationary readings, the IMF expressed that “we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”

Aside from this, the US economic calendar revealed US Pending Home Sales for August decreased by 2%, more than the expected 1.5% contraction, falling for the seventh straight month. “The direction of mortgage rates -- upward or downward -- is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” Lawrence Yun, NAR’s chief economist, said.

Also read: UK's Kwarteng won't resign, no reversal in policy – Sky News

GBP/USD Price Analysis: Technical outlook

The GBP/USD one-hour chart depicts the pair probed the R1 daily pivot around 1.0831, which is also the confluence of the 100-EMA, though the rally was quickly rejected, sending the exchange rate towards 1.0670. Of late, the Sterling reclaimed the daily pivot above the 1.0750 area, but solid resistance around the 1.0830-50 would be challenging to surpass for buyers aiming to reclaim the 200-EMA at around 1.1120. On the flip side, a break below the S2 daily pivot point at 1.0548 could pave the way for a YTD retest at 1.0356.

GBP/USD Key Technical Levels