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Daily Wrap Up 28 September 2022

28 Sep 2022 05:32 PM

Sterling remains in focus as BoE intervene

Sterling remains the talk of the town as the Bank of England purchased long-dated gilts as a way of keeping yields under control. The British pound has taken a hammering lately as there are growing worries about UK debt levels. The fact the BoE intervened in the market sent out a message the institution is nervous, and as a result, sterling declined. In the past few hours, the pound has pulled back some of the ground it lost but sentiment surrounding the currency remains fragile.

Stocks have flown under the radar this week as sterling has been in focus. Equities underwent a lot of volatility too. European indices spent much of the day in the red, but they managed to close higher because there was a pullback in bond yields. In a change of tempo, the dip in bond yields paved the way for equity bulls to step into the fold. Keep in mind, many of the recent stock market sell offs have been triggered by rallies in yields. Yesterday, the US 10-year yield briefly traded above 4%, it was the first time in 14 years that level was cleared, and in turn this morning S&P 500 index futures fell to their lowest level in nearly two-years. US yields have cooled considerably, and the 10-year yield is now below 3.8%. There is growing chatter the Fed might take a leaf out of the BoE’s book and look to dial down the rate it is tightening monetary policy.

As expected, the sharp retreat in US yields has hurt the US dollar index – it fell from its fresh 20-year high. EUR/USD is up over 0.5%, which is a big turnaround as it printed a new 20-year low this morning. The broad fall in the US dollar has helped GBP/USD swing into positive territory, but in general sterling is weaker. Gold is rising on two fronts, the decline in yields as well as the weaker US dollar. WTI is up over 2% as the EIA report showed that US oil stockpiles fell by 200,000 barrels, while traders were anticipating a build of 2 million barrels.

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