Tuesday, August 9, 2016

GBP/USD falls to near 1-month lows : 10.08.2016

GBP/USD falls to near 1-month lows, as BOE launches bond buying program GBP/USD falls to near 1-month lows, as BOE launches bond buying program

 GBP/USD fell for a fifth consecutive session crashing below 1.30 for the first time in nearly a month, as the Bank of England fell short of its target to buy more than a billion Pounds of long-term debt on Tuesday, as it resumed a comprehensive Quantitative Easing program in its first attempts to manage the fall-out from June's historic Brexit decision.

The currency pair traded between 1.2957 and 1.3032, before closing the U.S. afternoon session at 1.2997, down 0.32%. The British Pound has now erased all of its gains from last Tuesday's session when it surged more than 1.5% to an intraday high of 1.3366, its highest level in more than two weeks.

The Pound Sterling is now approaching 31-year lows from early-July when it fell to 1.2796 in the wake of the historic Brexit referendum. GBP/USD likely gained support at 1.2796, the low from July 6 and was met with resistance at 1.3481, the high from July 15. During Tuesday's reverse auction in London, investors offered 1.18 billion Pounds of long-dated sovereign bonds with maturities over 15 years, far short of the BOE's targeted goal of 1.170 billion.

 The effort marked the BOE's first attempt to purchase long-term debt following last Thursday's decision to approve a new package of easing measures, which will infuse an additional £60 billion of cash into the U.K. through the purchase of government bonds. The BOE said it will announce a plan to account for the shortfall on Wednesday morning, Reuters reported.

Consequently, yields on the UK 10-Year fell more than five basis points to an intraday-low of 0.563% its lowest level on record. The spread between the U.S. 10-Year and 10-year U.K. Gilts remains near all-time highs after yields on U.S. 10-year Treasuries closed at 1.55% on Tuesday, up 19 basis points for the month. Elsewhere, the Pound came under further downside pressure from soft factory data after reports showed that

 U.K. manufacturing data decreased by 0.3% last month, falling at a sharper rate than analysts' forecasts for a 0.2% decline. Meanwhile, investors continued to stake their bets on a 2016 rate hike from the Federal Reserve as they digest a robust monthly U.S. jobs report from late last week. The CME Group's (NASDAQ:CME) Fed Watch tool placed the probability of a December rate hike at approximately 50% on Tuesday, considerably above odds of around 30% before the report was released.

 The CME Group has also increased the chances of a September rate hike to around 20%, up from 10% last week. Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.20% to an intraday low of 96.02. The index is virtually flat over the last month.