<p style=““ class=“text-align-justify“>Just a heads up on this after the government has decided not to go through with a gas levy in fears that it will fuel a further price increase. A source earlier said that lawmakers have agreed to a significant but „responsible“ spending in dealing with the matter.</p>

This article was written by Justin Low at forexlive.com.

<ul><li>Rate hikes by major central banks raises recession risks</li><li>A big step in October is appropriate</li><li>ECB should start discussing QT now</li></ul><p style=““ class=“text-align-justify“>There’s a mix of comments in there but nothing that we don’t already know as being part of the ECB’s position at the moment. Policymakers from the central bank are out in droves today but the overall communique is clear i.e. 50 bps rate hike is the minimum for October but there’s a likelihood of raising by 75 bps as well.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>I’m not seeing any notable headline driving the move as this looks like just another swing in volatility for the pound this week. There is some notable short-term resistance just above 1.0900 but I would continue to pin the current range for the pair between 1.0600 and 1.1000 in the bigger picture.</p><p style=““ class=“text-align-justify“>The dollar continues to hold steady elsewhere, though gains have been pared slightly and not helped by this report <a target=“_blank“ href=“https://www.forexlive.com/news/pboc-reportedly-called-major-state-owned-banks-to-stock-up-for-yuan-intervention-20220929/“ target=“_blank“>here</a> as well, so this is more of a flow move in the pound. Broader <a target=“_blank“ href=“https://www.forexlive.com/terms/m/market-sentiment/“ target=“_blank“ id=“9c47bdfe-3721-43f4-97e8-fc0b97df4c60_1″ class=“terms__main-term“>market sentiment</a> also continues to be on edge with S&P 500 futures down 0.7%, European indices down roughly 1%, and bond yields pushing higher today. 10-year gilt yields are up 16 bps to 4.16% while 10-year Treasury yields are up 13 bps to 3.84% currently.</p><p style=““ class=“text-align-justify“>As for the pound, we heard from UK PM Truss that she’s not backing down from her recent policy initiatives and that is a clear signal for a couple of things.</p><p style=““ class=“text-align-justify“>If the gilt market continues to come under further pressure, it would require more effort by the BOE to try and restrain the market and provide more bailouts. In essence, it has to step in with some form of yield curve control.</p><p style=““ class=“text-align-justify“>That just points to further decimation for the pound on the balance of things and rightfully, it should require the government to be more fiscally responsible and embrace austerity. Otherwise, the contradicting policies between the government and central bank will just make for a disastrous recipe in terms of financial stability and confidence in the UK economy.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>Easy come, easy go. The BOE announcement brought some relief to broader market sentiment but it is proving temporary as equities are falling back lower now on the day. 10-year Treasury yields were down 7 bps to 3.895% earlier but have also pared the move in a push back to 3.965% currently.</p><p style=““ class=“text-align-justify“>That’s not a good look ahead of the Wall Street open, as even major intervention by the BOE in trying to address the source of uncertainty in markets this week isn’t doing the trick.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>After a bit of a whipsaw on the initial announcement from the BOE, the pound is now settling lower as traders digest the situation. Cable rose to a high of 1.0838 amid the whipsaw but has fallen down by 1.5% to 1.0570 as the dust begins to settle.</p><p style=““ class=“text-align-justify“>10-year gilt yields have also come back up now to 4.30% after having been down to 4.10% earlier, though still lower by 20 bps on the day.</p><p style=““ class=“text-align-justify“>Going back to the pound, what exactly does the BOE announcement entail for the currency?</p><p style=““ class=“text-align-justify“>A return to QE (well, sort of) isn’t exactly ideal at a time when we are seeing an <a target=“_blank“ href=“https://www.forexlive.com/terms/i/inflation/“ target=“_blank“ id=“ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa_1″ class=“terms__main-term“>inflation</a> shock in the economy. Ultimately, I believe traders are that simple with their conviction. As much as this provides some level of calm and financial stability – which is supposed to be the benchmark for any developed market, it is no game changer to the overall situation in the UK economy.</p><p style=““ class=“text-align-justify“>Add that to the fact that the dollar continues to be on a rampage, it’s hard to imagine this being a pick-me-up for cable. The downside pressure will continue so long as the Fed and BOE are at odds in terms of their policy convictions. I’ve repeated that for many months now.</p><p style=““ class=“text-align-justify“>If anything, the BOE announcement today just adds more scrutiny for the pound and that will put it firmly in the crosshairs of traders waiting to capitalise on another rout in the gilt market.</p>

This article was written by Justin Low at forexlive.com.

<ul><li>Prior +3.8%</li><li>Market index 254.8 vs 264.7 prior</li><li>Purchase index 199.3 vs 200.1 prior</li><li>Refinancing index 524.1 vs 588.1 prior</li><li>30-year mortgage rate 6.52% vs 6.25% prior</li></ul><p style=““ class=“text-align-justify“>The average interest rate on the most popular US home loan climbed further in the past week to 6.52%, its highest level since August 2008. The rise in mortgage rates is continuing to take a heavy toll on activity and the housing sector as purchases and refinancing both fell as well with the latter index sliding to a 22-year low.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>10-year gilt yields have tumbled significantly since the announcement, down 40 bps on the day now to 4.10%:</p><p style=““ class=“text-align-justify“>The BOE has backed down from QT and then some in their latest announcement, offering to buy government bonds „temporarily“ in order to try restore order and function in the gilt market. And so now, we have rate hikes and QE (well, sort of) at the same time with the UK now joining Europe and the ECB.</p><p style=““ class=“text-align-justify“>In any case, the takeaway from the past week is essentially policy incoherence from the UK and this just adds to that. Sure, there were signs of dislocation and dysfunction with the gilt market and the BOE action today will help with that. However, is it really a be-all, end-all solution?</p><p style=““ class=“text-align-justify“>I want to say that I’m on the fence but in all honesty, I’m leaning towards a hard no.</p><p style=““ class=“text-align-justify“>I mean, when a central bank has to step in with major intervention in the bond market as a result of government policy and not some of external shock, something is deeply rotten at the core. That of sort of dynamic in itself is dysfunctional.</p><p style=““ class=“text-align-justify“>This is essentially a band aid solution in trying to restore confidence in the gilt market but unless it is accompanied by some change or backing down on the fiscal side, it is hard to see this as being a turning point for UK assets.</p><p style=““ class=“text-align-justify“>If Kwarteng is going to keep doing Kwarteng things and the BOE has to come out to put out the fire in every instance, it’s not exactly a picturesque graphic of the UK economy – especially when you have to consider that the central bank has to run against its own policy resolve in trying to fight high inflation pressures.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>There might not be much in terms of monetary policy remarks from Powell today as the topic that the panel is speaking about is more related to digital finance and DeFi. You can watch the discussion here:</p><p>Or at this link <a target=“_blank“ href=“https://www.youtube.com/watch?v=r_9GrgvNkxY“ target=“_blank“ rel=“nofollow“>here</a>, in case the video above isn’t working.</p>

This article was written by Justin Low at forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/broader-market-sentiment-is-holding-up-so-far-today-20220927/“>Broader market sentiment is holding up so far today</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/feds-evans-getting-inflation-under-control-is-the-priority-20220927/“>Fed’s Evans: Getting inflation under control is the priority</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/feds-evans-says-expects-to-raise-rates-further-and-hold-stance-for-quite-a-while-20220927/“>Fed’s Evans says expects to raise rates further and hold stance for quite a while</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/ecbs-centeno-rate-hike-cycle-will-continue-20220927/“>ECB’s Centeno: Rate hike cycle will continue</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/nord-stream-operator-says-three-offshore-pipelines-have-sustained-unprecedented-damages-20220927/“>Nord Stream operator says three offshore pipelines have sustained „unprecedented“ damages</a></li></ul><p>Markets:</p><ul><li>NZD leads, USD lags on the day</li><li>European equities higher; S&P 500 futures up 1.3%</li><li>US 10-year yields down 7 bps to 3.811%</li><li>Gold up 1.1% to $1,639.73</li><li>WTI crude up 1.2% to $77.65</li><li>Bitcoin up 5.8% to $20,215</li></ul><p style=““ class=“text-align-justify“>We’re seeing a bit of a breather in markets as the broad selling everywhere hits pause for a bit of a correction. The dollar is lower as it retraces a small part of its recent gains and the pound capitalised on that, with GBP/USD climbing up over 1% on the day as the rout in gilts also encounter a pause. That said, cable is still only settling just above 1.0800 at the moment. Pain. 🤕</p><p style=““ class=“text-align-justify“>EUR/USD is up 0.4% to 0.9645 with the high earlier touching 0.9670 but the gains aren’t anything to shout about as the single currency is still reeling after having hit a 20-year low against the dollar. Meanwhile, USD/JPY is down 0.3% to 144.30 but buyers are still in a good spot to try and contest the 145.00 mark again – where the BOJ/MOF intervened last week.</p><p style=““ class=“text-align-justify“>Commodity currencies are holding higher as the more positive risk mood today is also helping. That said, the moves pale in comparison to the recent selling with USD/CAD at 1.3675 even though down 0.4% and AUD/USD near 0.6500 even with a 0.6% advance. NZD/USD is a decent mover, up 1.2% to 0.5705 but that comes after having hit its lowest levels since the early days of the pandemic yesterday.</p><p style=““ class=“text-align-justify“>Equities are finding some relief from the recent selloff but I would say a lot of this can be attributed to calmer tones in the bond market as the heavy rout stalls for the time being. 10-year gilt yields are down 12 bps to 4.13% while 10-year Treasury yields are down 7 bps to 3.81% and that is providing broader markets with some reprieve – at least for now.</p><p style=““ class=“text-align-justify“>European indices and US futures are showing a modest bounce but it doesn’t take away from the downside pressure in recent weeks. And as is the case in familiar times such as these, it doesn’t take much for sentiment to go cowering again.</p>

This article was written by Justin Low at forexlive.com.

<ul><li>There is no de-anchoring of inflation expectations in Europe</li></ul><p style=““ class=“text-align-justify“>We already know that the ECB will at least hike again in October but the question is how much? There’s still a debate between 50 bps and 75 bps that needs to be settled.</p>

This article was written by Justin Low at forexlive.com.