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After plunging to record lows against the US dollar (USD) three weeks ago, the Great British Pound (GBP) gained some ground, reaching 1.1500 last week, its highest in three weeks. The pound sterling received support from the Bank of England’s unexpected announcement regarding an increase in its purchase programme for long-dated, temporary gilt bonds. The BoE raised its maximum daily purchase limit from £5 billion to £10 billion. But how long can such news sustain the GBP?
GBP/USD outlook
The UK’s central brank also announced that it will “stand ready through its regular Indexed Long Term Repo operations to support the further easing of liquidity pressures facing LDI funds.”
Prior to these announcements, the GBPUSD had lost some of its recovery momentum due to a further strengthening of the greenback and political tensions in the UK. The pound received a boost after Prime Minister Liz Truss confirmed that the government would not go ahead with its plan to give up the 45% income tax rate. This announcement lifted overall market sentiment.
On the other hand, some easing in US PCE Price Inflation and ISM Manufacturing Price Paid data, along with a sharp decline in the JOLTS Job Opening numbers weighed on the US dollar. The upbeat data reduces the probability that the Fed would raise interest rates by 75 bps in its November meeting.
How to trade the GBP/USD
Risk aversion appears to be the dominating market sentiment, driven in part by the escalating geopolitical tensions between Western countries and Russia over the conflict in Ukraine. For now, it could be useful for forex traders to watch important economic releases and developments.
This week, the UK is scheduled to release its inflation, PPI, Retail Price Index, 10-Year Treasury Gilt Auction, Retail Sales and Public Net Borrowing data.
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