GBP recovers after hitting record low

The news shaping the markets today

The Biden administration announced a $1.1 billion package of weapons and equipment to aid Ukraine in its ongoing war with Russia. The news sent the US dollar index higher this morning.

Malaysia’s producer prices rose 6.8% year-over-year in August, following a 7.6% increase in the previous month. Despite the easing, the MYR/USD forex pair remained under pressure.

Vietnam’s annual inflation rate accelerated to 3.94% in September, from 2.89% in August. This being the highest inflation rate since March 2020 sent the VND/USD pair lower in forex trading this morning.

UK’s car production surged 34% from a year earlier to 49,901 units in August, rising for the fourth month in a row. The news supported the FTSE 100 higher on Wednesday.

South Korea’s Business Survey Index for the manufacturing sector fell to 75 in September, exerting pressure on the KRW/USD forex pair.

What’s happening: The British pound recovered on Wednesday, following a surprise intervention by the Bank of England.

What happened: The sterling regained ground after having tumbled to a record low against the US dollar earlier in the week.

The country’s major index also settled higher on Wednesday, following the central bank’s announcement.

Why it matters: The GBP/USD forex pair fell to a record of 1.03 on Monday after Finance Minister Kwasi Kwarteng announced a mini-budget to implement tax cuts and provide investment incentives. The IMF (International Monetary Fund) warned that Kwarteng’s deep tax cuts would increase inflation in the country.

On Wednesday, the Bank of England announced an unexpected intervention to prop up the gilt market, launching an emergency programme to buy as many long-dated government bonds as needed from September 28 to October 14 in a bid to lower surging public borrowing costs and stabilise the financial markets in the country.

The announcement exerted pressure on the British pound, which tumbled to as low as about 1.05 versus the US dollar. The move triggered speculations of the sterling reaching parity with the US dollar. However, the British currency recovered all losses by the end of the session.

The surprise intervention also provided support to the FTSE 100. The index had been downtrend on Wednesday but later climbed and closed at 7,005.39, up 0.3%. The FTSE 100 was supported by real estate and utility shares.

The decline in the US dollar also provided some support to the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 1.3% to 112.60 on Wednesday, after reaching a new 20-year high earlier in the session.

The GBP/USD forex pair climbed around 1.5% to settle at 1.0891 on Wednesday.

What to watch: Traders will keep an eye on the Bank of England, which is expected to increase interest rates further to counter the new government’s tax-cutting measures. Experts project a rate hike of 160 bps at the central bank’s next meeting.

The markets today

US stocks will be in focus today ahead of the release of some important economic data

Context: US stocks closed higher on Wednesday, with the Dow Jones index recording a big comeback after hitting its lowest level this year.

Details: Wall Street recovered sharply on Wednesday after the Bank of England announced plans to buy bonds to stabilise the country’s financial markets. The Dow Jones and S&P 500 indices ended a six-session losing streak, following the UK central bank’s surprise announcement.

All sectors in the S&P 500 index closed on a positive note, with energy and communication services stocks leading the rally. Home Depot was among the top performer on the Dow Jones index, gaining 5% on Wednesday.

On the economic data front, the US trade deficit on goods shrank for the fifth month to $87.3 billion in August, with imports declining by 1.7%. However, in August, wholesale inventories climbed by 1.3% to $913.1 billion.

The Dow Jones index added around 549 points, or 1.88%, to close at 29,683.74 on Wednesday, a day after hitting its lowest level in 2022. The S&P 500 gained 1.97% to settle at 3,719.04, while the Nasdaq 100 jumped 1.97% to close at 11,493.83.

What to watch: Investors await the release of economic data on GDP growth and initial jobless claims from the US today. The number of Americans filing new claims for jobless benefits had risen by 5,000 to 213,000 in the week ended September 17 and is expected to increase further to 216,000 in the recent week. The US economy is projected to contract by an annualised rate of 0.6% in the second quarter.

Other Markets: European trading indices closed higher on Wednesday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 0.36%, 0.19% and 0.30%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Denmark’s manufacturing confidence indicator, South Africa’s money supply M3 and private sector credit, Austria’s industrial production, business confidence and consumer confidence, Spain’s inflation rate and industrial confidence indicator, Turkey’s economic confidence index, foreign exchange reserves and Central Bank of Turkey’s MPC meeting summary, Sweden’s monetary policy meeting minutes, Vietnam’s foreign direct investment, Italy’s producer price inflation, Eurozone’s economic sentiment indicator, industrial confidence indicator, selling price expectations, services confidence indicator and consumer confidence indicator, Finland’s business confidence, Romania’s business confidence, Belgium’s inflation rate, South Africa’s Producer Price Inflation, Chile Unemployment Rate, Germany’s inflation rate, Canada’s monthly GDP, CFIB’s business barometer long-term optimism index and average weekly earnings, Czech National Bank’s interest rate decision, US continuing jobless claims, corporate profits and natural gas stocks change, Argentina’s consumer confidence indicator, Central Bank of Mexico’s interest rate decision, Bangladesh’s inflation rate, as well as Brazil’s net payrolls.