IFX Market Report: Thursday 29th September 2022

The Bank of England launched a £65bn bond-buying plan to calm the markets after last week’s “mini-budget” announcements. The bank has suspended its gilt selling next week and has begun buying long-dated bonds. Gilts, which are yields on government bonds, were due for their sharpest increase since 1957, with investors massively offloading their GBP assets in a show of no confidence in Liz Truss’ economic policies. The central bank also stated that it would pursue the plan on “whatever scale necessary”.

Former Bank of England governor Mark Carney accused the British government of “undercutting” key economic institutions and mentioned the Office for Budget Responsibility’s (OBR) decision to not publish an economic forecast on Friday alongside the chancellor’s “mini-budget”. He stated: “There was an undercutting of some of the institutions the underpin the overall approach - so not having an OBR forecast is much-commented upon and the government, I think, has accepted the need for that but that was important."

This morning, Liz Truss defended her plan, and turned down speculations of a U-turn. However, even the International Monetary Fund (IMF) urged the PM to reconsider the tax-cutting plans in a rare public criticism from the international body with Moody’s also stating that “large unfunded tax cuts are credit negative”.

China is also facing a massive depreciation of its currency against the greenback and in a statement published yesterday, the People’s Bank of China warned against betting on the yuan after its rapid decline. The statement is extracted from a speech Liu Guoqiang, the central bank’s governor.

USDCNY reached 7.2506 yesterday but closed at 7.1990. However, the yuan has already fallen by over 12% this year against the US dollar, as the pair suffered from a strict zero-covid policy that affected the biggest Chinese hubs in the spring and the summer.

Cable saw a near 3% range yesterday after the BOE intervention support saw the pound initially move to 1.0830, before slipping all the way back to around 1.055, then recovering back to finish the session around 1.08. The pair have opened at 1.0780.

GBPEUR saw similar moves peaking at around 1.1270, then dropping to around 1.1050 then settling and opening today at 1.1175.

EURUSD saw the European currency supported after Christine Lagarde’s speech in the morning, and ahead of the next monetary policy meeting at the end of October. EURUSD opened at 0.9594 and closed at 0.9734.

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