BoE Announces New Bond Buying Program, Sterling Stutters Then Slumps

GBP/USD and Gilts – Prices, Charts, and Analysis

• BoE to buy longer-dated gilts.
• UK long-dated bonds rally sharply.
• Sterling is under pressure.

The Bank of England today announced that it start a new, temporary program to buy long-dated gilts to stem the recent heavy sell-off in the UK gilt market. The recent re-pricing of UK financial markets has been noted by the UK central bank which has been forced to act.

‘This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability’, according to a BoE statement.

To achieve this, the BoE will carry out temporary purchases of long-dated UK gilts from today.

‘The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury’. The planned sale of UK gilts from the balance sheet (QT) has been delayed with the first sale set to take place on 31 October.

Bank of England Announcement

Longer-dated UK gilt yields fell sharply after the announcement, paring back some of their recent losses, while Sterling fell after originally being undecided. The UK will now be loosening fiscal policy, via last week’s tax cuts, while at the same buying UK assets and thus tightening monetary policy.

GBP/USD 5-Minute Price Chart – September 28, 2022

Retail trader data show 69.70% of traders are net-long with the ratio of traders long to short at 2.30 to 1. The number of traders net-long is 3.78% higher than yesterday and 11.19% lower from last week, while the number of traders net-short is 15.23% higher than yesterday and 80.43% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.