British Pound and Euro Test New Lows, Forcing BoE to Intervene

Bridgette Randall
28 Sep, 2022
Frankfurt

European markets rebounded from early losses and turned higher following the U.S. averages.

The Bank of England was forced to intervene and conduct a temporary bond purchase program to shore up the weakening pound.

The BoE said that the "temporary and targeted" purchase is carried out to solve a specific problem in the long-dated government bond and the step is fully indemnified by the treasury department. 

The central bank's intervention arrested the decline in the pound and stabilized the bond yield for now but traders are anticipating the currency to resume its slide.

The U.K. government also faced criticism from the International Monetary Fund after the multilateral agency urged the government to reconsider unfunded tax-cuts and fiscal incentives. 

The euro inched lower to 95.56 U.S. cents and the British pound fell to $1.07.

The yields on 10-year U.K. bonds held at 4.04%, the German bunds at 2.16%, French bonds at 2.72% and the Italian bonds 4.68%.

The spread between the Italian and German bonds continued to widen after the latest election results on Monday. 

German market indexes were also under pressure after the consumer confidence index plunged to -42.5 in October from the revised -36.8 level in September, according to the survey released by the research group GfK Wednesday. 

The French consumer confidence index declined to 79.0 in September from 82.0 in August, the statistical office Insee said Wednesday. 

The DAX index inched up 0.4% to 12,183.28, the CAC-40 index gained 0.2% to 5,765.01 and the FTSE 100 index advanced 0.3% 7,005.39.  

In commodities trading, crude oil and natural gas prices rebounded from the lows seen last week. 

Brent crude oil jumped 3% to $88.88 a barrel and TTF natural gas futures soared 11.3% to 217.19 euros a megawatt hour. 

Gold jumped 2.0% to $1,660.32 an ounce and silver increased 2.9% to $18.19 an ounce and copper gained 1.9% to $3.38 a pound.