(The Private Banker) - The British pound rose about 1% against the dollar and traded around $1.07 in the early European trading session, bounced back after yesterday’s record drop.
Many analysts state that the sterling might reach parity with the dollar or even fell below the $1 level as the recent announced tax cuts by the British government pressured the pound which might lead to a dept sour as there are no details about a new fiscal plan for the moment while Kwasi Kwarteng plans to explain his plan on 23rd November. The mentioned tax cuts leading to higher demand which effects inflation to pressure the pound, technically and presumably.
Monday’s drop did not lead the Bank of England to deliver an emergency interest rate hike as the speculation about this matter went around, stating that market developments will be monitored and the central bank will discuss the fall of the pound in the next meeting in November.
Markets pricing in a potential 200bps hike in November as the new government plans to boost growth with scrapping the 45p top rate of income tax and replacing it with a 40p rate.
Lenders begun to withdraw montage deals as of concerns that the Bank of England will hike interest rates again to support the pound and to fight inflation.
The central bank’s chief economist Huw Pill will speak later in the morning as traders and investors await some clarification about the current situation.
Current forecasts point to the downside as the cable rate approaches the lower historical standard deviation level for potential supportive core pound buyers, while risk is imminent.
The daily interval of the particular rate against the dollar trades below the Decade, Yearly and Quarterly developing value areas with an imbalanced downside slope, giving the lower periodicities a bearish bias.
However, the current fundamental aspect of the day points to a pullback towards selling areas where traders may add to their core positions.
The hourly interval bounced back from the lows of around $1.04, testing the week’s upper value extreme for pound shorting while buyers may target the upper monthly value area which is confluent with a prior VWAP close level, above the swing highs which might lead to absorption behavior. Depending on the further auction the lower value extreme of the week’s developing value area might be supportive.
Asset managers/Institutional were kind of mixed in the prior weeks positioning with new longs of 1.619 contracts of 6B Futures contracts and shorting about 818 contracts with a net position of about minus 97.492 contracts. The leveraged fund side bought about 5334 contracts while covering about 8154 short contracts as of September 20th.
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