A backdrop of increasing gilt bond market risks is pressuring the GBP ahead of Bank of England Governor Andrew Bailey’s speech later today. The central bank official is expected to give more insights into the recent developments in the UK bond market.

To prevent further loss of confidence in the UK’s sovereign and bank debt market, the BoE intervened on September 28 by extending its quantitative easing (QE) program until October 14.

So far, the daily auctions have ranged between 5 and 10 billion pounds per day and bond purchases are expected to reach up to 40 billion pounds by the end of the QE program. The central bank is also offering the banking sector temporary liquidity in exchange for eligible collateral including exchange-linked gilts and the new Short Term Repo Facility offering an unlimited quantity of reserves at Bank Rate once per week on Thursdays.

The central bank’s intervention appears to have steadied the bond and GBP markets, but the currency remains weaker versus other currencies and there is more uncertainty in the outlook given the current high inflation levels and slower economic growth.

The GBP may start seeing headwinds in the jobs sector. The UK’s ILO Unemployment Rate dropped from 3.6 percent in August to 3.5 percent in September, which is supportive of the currency. However, the Jobless Claimant Count for the same period climbed from 6.3K to 25.5K. The claimant count is an early indicator of strength or weakness in the employment market, so it bears watching in the months ahead. On the brighter side, salaries including bonus rose to 6 percent in September from 5.5 percent in August.

In other trading news this week, the head of the European Central Bank (ECB), Christine Lagarde, will give a speech tomorrow, Wednesday October 12, followed by the Federal Open Market Committee (FOMC) Minutes. Both events are expected to reveal more details about upcoming monetary policy decisions. Currently, the Federal Reserve and the ECB are hawkish on monetary policy and determined to tamp down inflation by hiking interest rates.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.