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Bank of England to acquire UK long-term bonds to restore market conditions


US stocks rallied on Wednesday, regaining upside strength and ending their six-day slide after the Bank of England’s decision to stage a market intervention boosted UK bonds and tentatively calmed markets. The BOE decided to buy long-dated UK government bonds starting today to restore market conditions and later confirmed that it could buy just £1.025 billion in the emergency QE operation.

Therefore, the BoE’s decision supported the market sentiment and global markets enjoyed a break from the brutal selling that has gripped them since the Fed embarked on the most aggressive path of interest-rate hikes since the 1980s.

However, several US Federal Reserve officials lined hawkish, repeating the well-known message of another 75 bps coming up next. In the Eurozone, ECB President Christine Lagarde participated in a US-European GeoEconomics forum and said they would continue to hike rates in the next several meetings. Other ECB Governing Council members also openly favoured a 0.75% rate hike in the next meeting.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Wednesday as the S&P 500 snapped a six-day rout and rose the most since early last month. The S&P 500 was up 2.0% daily the Dow Jones Industrial Average also climbed higher with a 1.9% gain for the day. All eleven sectors in S&P 500 stayed in positive territory as the Energy and Communication Services sectors are the best performing among all groups, rising 4.40% and 3.18%, respectively. The Nasdaq 100 meanwhile advanced with a 2.0% gain on Wednesday and the MSCI World index was down 0.1% for the day.

Main Pairs Movement

The US dollar declined sharply on Wednesday, failing to preserve its upside traction and dropped to a daily low below the 112.70 mark in the late US session after a positive turnaround in the global risk sentiment. But the downside for the US dollar seems limited amid the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve. The market focus now shifts to the German inflation data.

GBP/USD rebounded higher on Wednesday with a 1.42% gain after the cable touched a daily top above the 1.090 mark amid the Bank of England’s (BoE) efforts to cap the fixed income market. On the UK front, the Bank of England entered the bond market on Wednesday which aimed to stimulate the economy. Meanwhile, EUR/USD also staged a goodish rebound and refreshed its daily high near 0.974 level amid US dollar weakness. The pair was up almost 1.45% for the day.

Gold surged higher with a 1.91% gain for the day after climbing to a daily top above the $1,660 mark during the late US trading session, as a sharp pullback in the US bond yields weighed on the greenback and underpinned the safe-haven metal. Meanwhile, WTI Oil advanced higher with a 4.95% gain for the day after recovering towards the $82 area amid the risk-on market mood.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDGDP (Q2)20:30-0.6%
USDInitial Jobless Claims20:30215K
CADGDP (MoM)20:30-0.1%
NZDRBNZ Gov Orr Speaks21:00