Currency Pair of the Week: GBP/USD

GBP/USD is one of the most popular pairs to discuss over the last month. When Chancellor Kwasi Kwarteng announced the plans for Prime Minister Truss’s new mini-budget program, markets were concerned as to where the money would come to fund it. The Bank of England had been slowly raising interest rates and investors were weary that the government would now have to borrow money at much higher rates. As a result, the Gilts and the GBP got hammered. A few days later, the BOE intervened in the Gilt market, which brought yields lower the value of the Pound higher. Th Central bank said it would continue to intervene in the market as necessary, buying up to 5 billion GBP per day worth of Gilts through October 14th, in order to keep liquidity in the markets.

On Monday, the BOE gave an update as to how it would continue addressing concerns beyond October 14th. The Central Bank said it would raise the amount of Gilts it would buy per day through October 14th for 5 billion pounds to 10 billion pounds. In addition, the BOE launched a longer-term facility through mid-November to able banks to ease liquidity pressures in Liability-Driven Funds. This was done so that these funds have the liquidity needed to unwind certain positions over the next few weeks. The BOE meets again on November 3rd.

GBP/USD began trading aggressively lower in a downward sloping channel once the pair broke below 1.3000 on April 22nd . On September 21st, GBP/USD pierced the bottom trendline of the channel. However, it wasn’t until September 23rd that the pair broke aggressively through the bottom of the channel. On Monday, September 26th, GBP/USD had traded to a low of 1.0357, as the BOE intervened in the Gilts market, and the GBP recovered. Over the next 6 days, GBP/USD bounced near the 61.8% Fibonacci retracement level from the highs of August 10th to the lows of September 26th, near 1.1495. Since then, the pair has been on the move lower once again.