Craig Erlam (Oanda) Talks RBA Decision, British Pound (GBP) And The UK Situation And More

GBP/USD Pair: Drop Does Not Even Appear To Be A Correction

Stock markets recovered earlier losses on Monday and are adding to that in early trade on Tuesday, with Asia also posting strong gains.

The turnaround in risk appetite appears to have been driven by another deterioration in PMI surveys as traders speculate that such weakness could be a precursor to slower monetary tightening. If that sounds like straw clutching, it’s probably because it is but then, equity markets have had a rough ride of late and that can’t last forever.

The deceleration begins

The RBA became the first major central bank to slow the pace of tightening overnight, hiking rates by only 25 basis points against expectations of another 50. After four consecutive super-sized hikes, the RBA determined it can start to ease off the brake and is on course to hit its inflation target over the medium term.

Australian Dollar

Of course, this had nothing to do with weak PMI surveys but it will probably assist the narrative that a global deceleration in rate hikes is underway, which could boost risk appetite further. Markets do love to set themselves up for disappointment. The jobs report on Friday could quickly put an end to that.

Damage control

The pound has continued its recovery this week amid reports that UK Chancellor Kwasi Kwarteng will shortly unveil his second u-turn in 24 hours. Despite repeatedly insisting otherwise, Kwarteng is poised to announce that the government’s debt-cutting plan will be brought forward – perhaps later this month – alongside OBR forecasts in a bid to calm the markets.

While the damage to the pound can be undone, the needless reputational harm the government has suffered won’t be as easily repaired. The Chancellor has shown a flagrant disregard for the markets – and the general public for that matter – and that will take time to undo. The move is a welcome first step, now he must convince everyone that his plan is credible and won’t come at a significant economic cost. ​ ​

Less enthusiasm for bitcoin

The risk relief rally is extending to bitcoin but perhaps to a lesser extent, with the cryptocurrency up a little over 1%, but still shy of $20,000. The slight disconnect between bitcoin and other risk assets recently has been interesting. We’ve seen more resilience during downturns and seemingly less enthusiasm during rallies. It will be interesting to see whether this relationship holds and what that means going forward.

For a look at all of today’s economic events, check out our economic calendar:

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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GBP/USD Pair: Drop Does Not Even Appear To Be A Correction

Craig Erlam

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.