The Bank of England surprised the market first thing today by announcing that it would increase its long-dated, temporary, gilt market purchase program from a daily maximum limit of GBP5 billion to GBP10 billion for the rest of the week. In an effort to ‘support an orderly end of its purchase scheme’, the UK central bank will use unused capacity to double the size of this week’s auctions, and will also launch a Temporary Expanded Collateral Repo Facility (TECRF) to help banks ease pressures facing their LDI clients. In addition, the BoE will also ‘stand ready through its regular Indexed Long Term Repo operations to support the further easing of liquidity pressures facing LDI funds. In short, the BoE is offering excessive amounts of liquidity to the market ahead of the end of the gilt buying program on Friday.

UK long-dated bond yields have been creeping higher over the last week despite the central bank moping up bonds at certain levels. The BoE has only bought around GBP5 billion of bonds so far.

Cable (GBP/USD) jumped around 40 pips in the wake of the announcement and is pushing back towards 1.1100.

GBP/USD Daily Price Chart – October 10, 2022

(Click on image to enlarge)

Retail trader data show that 57.12% of traders are net-long with the ratio of traders long to short at 1.33 to 1.The number of traders net-long is 2.77% higher than yesterday and 4.19% higher from last week, while the number of traders net-short is 5.44% higher than yesterday and 6.99% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

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