After the BoE announced more support measures, the GBP/USD pair began to progress positively. A headwind might be caused by concerns over the budgetary intentions of the UK government and worries about a recession. The USD is supported by aggressive bets on a rate rise from the Fed, and a risk-off mindset should keep gains in check.
On the first trading day of the new week, the British pound to the United States dollar exchange rate halted its recent significant retreat from the area around the psychological level of 1.1500 and attracted some purchasing. Although there is a lack of bullish confidence, spot prices continue to inch upward during the early part of the European day and reach again over the 1.1100 barriers.
The Bank of England has announced several new measures to improve the functioning of the market. These new measures include increasing the limit of its government bond-buying scheme from £5 billion to £10 billion per day and the Temporary Expanded Collateral Repo Facility (TECRF) to alleviate the liquidity squeeze on pension funds that were forced to sell gilts as a result of the market rout that followed the mini-budget.
This, in turn, gives the British pound a little boost, and it helps the GBP/USD pair recoup almost 50 pips from the 1.1050 range, a one-week low recorded last Friday. Any substantial upside appears to still be elusive amid worries over the fiscal strategy of the UK government and fears of a recession.
On the other hand, the United States dollar continues to hold its ground despite growing predictions that the Federal Reserve would maintain its aggressive rate-increasing cycle to contain inflation. At their next meeting in November, the financial markets are pricing in a probability of over 80% that the Federal Reserve will raise interest rates by another supersized 75 basis points (bps). The wagers were validated by the recent hawkish statements made by numerous Fed officials and by the positive US employment figures released on Friday.
Aside from this, the current risk-off atmosphere continues to operate as a tailwind for the safe-haven greenback and contributes to limiting gains for the GBP/USD pair, at least for the time being. This helps to keep gains for the GBP/USD pair within reasonable bounds. Concerns about economic headwinds caused by fast-increasing borrowing rates and geopolitical threats continue to keep the market attitude in a fragile state. Investors’ desire for risky assets is tempered as a result of this, in addition to trade concerns between the United States and China.
In the most recent events, the White House developed new export rules, preventing Chinese enterprises from accessing specific semiconductor chips produced using US equipment. The players in the market have been more cautious due to concerns that any response from China could impair trade relations between the two biggest economies in the world and have more profound economic ramifications. It is anticipated that this will continue to support the USD and maintain a ceiling on the GBP/USD pair.
On Monday, there will not be any significant economic data releases that are expected to move the market. In addition, cautiousness is warranted before initiating bullish wagers on the GBP/USD pair since trading volumes have been relatively low due to the US holiday observed in observance of Columbus Day. Therefore, it will be wise to wait for solid follow-through purchasing to confirm that spot prices have established a near-term bottom around the 1.1050 level. This may be done by waiting for strong follow-through buying.