The British pound continued to lose its position, even though, after refuting rumors that the regulator would not postpone the launch of the balance sheet reduction program, the Bank of England still made an exception for long-term securities.
As it became known, at the beginning of next month, the Bank of England will begin deferred bond sales, still focusing on fighting record inflation after averting the threat of a market collapse at the end of last month. The announcement of the so-called quantitative tightening is nothing more than a statement of the Central Bank's intentions to continue the fight against inflation after it had been on the defensive for several weeks because of the actions of the British government, which wanted to make unjustified tax cuts.
The Bank of England noted that the bond sales would not initially include long-term debt underlying the recent market turmoil caused by the government's ill-fated fiscal plans.
Many economists doubted that the Bank of England and its governor, Andrew Bailey, would go against the government and British Prime Minister Liz Truss. Still, the firm decision not to get involved in "playing with fire" anymore convinced even avid skeptics. It is obvious that after the regulator has already raised interest rates several times this year, Governor Andrew Bailey's position will most likely remain unchanged regarding further plans to tighten monetary policy.
The launch of QT also adds strength to the regulator. It puts it back on the path of fighting inflation and allows the Bank of England to move even further away from any attempt at manipulation by the government.
The impact of this decision on the securities market was obvious: short-term securities fell as the Central Bank's decision dispelled hopes of a direct delay in sales. In contrast, long-term securities rose as they received support from the Bank of England's plan. The yield on 30-year bonds fell by seven basis points to 4.24%, and 10-year rates rose by eight basis points to 4.02%.
According to experts, the new sales plan is a pragmatic compromise that allows us to adhere to the plan to reduce the giant balance sheet while maintaining the stability that the Bank of England has brought to the long-term market segment. Now that a new chancellor, Jeremy Hunt, is in power, and the new fiscal policy is aimed at ensuring a reduction in public debt in the medium term, Bailey will surely signal in the near future that his efforts to reduce the central bank's balance sheet are returning to the right track.
As for the technical picture of GBPUSD, it is obvious that buyers will focus on protecting the support of 1.1240 and the resistance of 1.1330, limiting the upward potential of the pair. Only a breakthrough of 1.1330 will open prospects for recovery to the 1.1400 area, after which it will be possible to talk about a sharper jerk of the pound up to the 1.1480 area – the maximum of this month. It is possible to talk about the return of pressure on the trading instrument after the bears take control of 1.1240. This will blow the bulls' positions and completely negate the prospects of the bull market observed since September 28. A breakout of 1.1240 will push GBPUSD back to 1.1160 and 1.1090.
As for the technical picture of EURUSD, the bears actively piled on the euro, hoping to return the pair to the side channel. After several important statistics, the euro managed to maintain its balance and hold its position. To resume growth, it is necessary to return above 0.9800, which will take the trading instrument to the areas of 0.9830 and 0.9870. However, the upward prospects will depend entirely on new US data. A break of 0.9760 will put pressure on the trading instrument and push the euro to a minimum of 0.9725, which will only worsen the situation of buyers of risky assets in the market. Having missed 0.9725, it will be possible to wait for the update of the lows in the areas of 0.9680 and 0.9640.
