September 30, 2022 02:12 AM ET
By: AnalysisWatch
The GBP/USD currency pair slipped below the immediate support of 1.1150, despite positive data on the UK gross domestic product (GDP). The UK Office for National Statistics reported that economic activity in the UK grew by 0.2%, while a decline of 0.1% had been expected on a quarterly basis. The annual data also improved dramatically from forecasts and the previous release of 2.9% to 4.4%.
Despite the surprise announcement of the bond buying program by the Bank of England (BOE), the cable price is currently on an upward trend. A 13-day bond-buying program was announced, under which the BOE will buy GBP 5 billion worth of long-dated bonds every day. If the BOE is committed to price stability, the impact of rising interest rates may be mitigated to some extent.
The U.S. Dollar Index (DXY) saw a steep decline this week after expectations of a slowdown in the current pace of rate hikes skyrocketed. It is worth noting that the Fed's rate peak is not far from current rates (3.3%-3.325%) after reviewing the pace of rate hikes. The Fed is expected to leave the final rate at 4.6% for an extended period, as discussed in the reported economic projections, until it detects a slowdown in price pressures for several months.
In September, despite falling gasoline prices, the market reacted with extreme risk aversion to the higher-than-expected overall Consumer Price Index (CPI) and Core CPI. As a countermeasure, the Fed announced a 75 basis point (bps) rate hike. As a result, the impact of Friday's upcoming U.S. consumer spending (PCE) is expected to remain muted. The consensus is for the core PCE index to come in at 4.7%, up 10 bps from the previous release