The straight-forward response to the BOE actions today would normally be GBP to decline. Turning the taps of QE back on is negative for a currency but today the market is saying that you need to look at the bigger picture as cable climbs nearly 300 pips from today's bottom:
- This may have prevented a disorderly unwind of UK positions and/or a severe strain on the financial system so tail risks are removed
- The size of buying today at GBP1 billion was small and smaller than expected
- It's a one-month program
- Month/quarter end may have been a big factor in the bond rout in the past week
- A 1.03 pound, psychologically, is quite a spot and it's anchored much higher in many people's minds, causing some buying
- FOMO in bonds globally -- there haven't been many opportunities for 4% in the past decade
- Short squeeze and wildly oversold conditions
That's a compelling setup, though I can think of many better ways to trade it than buying GBP/USD.
GBPUSD 30 mins
