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BoE add to GBP woes as Bailey announces end of support

Good morning

GBP fell sharply yesterday evening as BoEs Bailey confirmed that their temporary bond-buying will end this Friday. He warned of a a serious risk to financial stability and has told pension funds and the like that they have three days left to get their house in order. A strange message indeed, sounding very much like the UKs central bank is giving up and potentially letting the UK financial markets fall into a period of untold volatility. I’m sure that is not in their remit. Some suggestions BoE are cross with pension funds for not helping their cause in recent days, while an FT report suggested BoE may indeed extend their support if need be, which led to a brief GBP recovery overnight.

For now, fiscal and monetary policy are working in two opposite directions and that is not sustainable, something will have to give. Of course this is not all BoEs doing, we have to wait until the end of this month to heat how government will pay for Kwatengs mini-budget and I’m of the opinion that he will have to make a u-turn on those tax cuts in the not too distant future. Whether this would be enough to settle UKs financial markets remains to be seen.

GBPUSD traded down from 1.1185 to a low of 1.0925 yesterday evening. It has managed to tick back above 1.10, hitting 1.1025, before falling sharply again this morning to 1.0970 as I type. A similar move was noted in GBPEUR which had been up to 1.1460 before slumping to 1.1280, recovering to 1.1340 but slipping back again this morning to 1.1310. Same story in the crosses GBPAUD moved lower almost 200 points from a high around 1.7660 to 1.7465, now 1.7510, GBPJPY moved from 162.55 to 159.75, now 160.20.

On the subject of Yen, USDJPY traded up to 146.40 overnight and has held above 146.00 since then. The August 1998 highs around mid-147s are clearly in sight. Worth noting then that by October 1998 USDJPY had traded back down to near 112.00. Just remember this when we talk of volatility in GBP.

Elsewhere ECBs Villeroy has sounded as though he is looking for a job at the Fed, saying ECB must not let recession concerns stop them in their move to raise rates.

So central banks take centre stage and we all know they have a difficult job to do. Perhaps they should seek the help of NASA who have referred to themselves as ‘saviour of the planet’ after their recent attempt to hit an asteroid in order to alter its path was successful. An equally difficult task. Mind you what NASA haven’t said is which direction the asteroid is now heading. Wouldn’t it be just typical if they had knocked it on course for a collision with earth.

- 10.00 EU industrial production

- 12.00 UK NIESR GDP

- 12.35 BoEs Pill speaks

- 13.30 US PPI

- 14.30 ECBs Lagarde speaks

- 19.00 FOMC minutes

- 23.30 Feds Bowman speaks

- 01.00 AUS consumer inflation expectations

- 07.00 German HICP

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