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Pound Sterling Takes A Breather After Wild Ride

By MarketPulse (Kenny Fisher)ForexSep 30, 2022 04:19AM ET
www.investing.com/analysis/pound-sterling-takes-a-breather-after-wild-ride-200630495
Pound Sterling Takes A Breather After Wild Ride
By MarketPulse (Kenny Fisher)   |  Sep 30, 2022 04:19AM ET
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The British pound has posted slight gains, after a spectacular showing on Thursday. In the European session, GBP/USD is trading at 1.1145, up 0.26%.

For anyone looking for lots of volatility, look no further. The pound has taken riders on a wild ride, with GBP/USD surging 2.1% on Thursday. On Monday, the pound traded in a stunning 500-point range, which saw GBP/USD touch a record low of 1.0359. Since then, the pound has padded on 800 points, in what has been a truly remarkable week.

The driver behind the pound’s volatility was Chancellor Kwarteng’s mini-budget, which included tax cuts and increased borrowing. The package was roundly criticized, with even the IMF and US officials panning the plan. This led to a near-crash in the UK bond market, forcing the Bank of England to take emergency measures and pledge unlimited purchases of securities. The bailout will continue for over two weeks and could cost up to 60 billion pounds. The BoE’s intervention has reassured investors and stabilized the bond market. The pound continued to swing wildly, but it has recovered almost all of the losses triggered by the mini-budget.

What happens now? The government clearly was not expecting a financial tsunami after a mini-budget, which are usually tame affairs that don’t affect the financial markets. Prime Minister Truss is under pressure to shelve or at least make changes to the mini-budget, but so far Truss is holding firm and insisting that she will stick with the plan. If she does, we can expect inflation, which is running at a 9.9% clip, to climb even higher.

GBP/USD Daily Chart
GBP/USD Daily Chart

GBP/USD Technical

  • GBP/USD has support at 1.1144 and 1.1052
  • There is resistance at 1.1265 and 1.1384

Original Post

Pound Sterling Takes A Breather After Wild Ride
 

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Pound Sterling Takes A Breather After Wild Ride

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