In a dramatic policy U-turn, the Bank of England is resuming gilt purchases. Yet, economists at ING expect GBP/USD to struggle to surpass the 1.08/09 area. 

Mixed news for the pound

“BoE gilt intervention is being seen as mixed news for sterling. The positive is that the BoE has taken action to address financial stability concerns at the long end of the gilt market.”

“Die-hard sterling bears will remain so, citing ‘fiscal dominance’ in that the BoE has suspended its planned QT, and by buying gilts the BoE effectively provides room for the government to continue with its aggressive fiscal programme. That is why we have seen HM Treasury make every effort to reassure BoE independence.”

“We doubt cable holds gains to 1.08/1.09 and the bias has got to be for a 1.0350/1.0500 retest.”