USD Continues to Thrive while UK Tries to Stabilize the Economy

The US Dollar remains in control for a fifth consecutive day. Investors have not priced in a lower inflation or a less restrictive Federal Reserve so far. The US Dollar Index reached a new price high for October and continues climbing towards its yearly high at 114.10. This morning, USD is seeing its strongest gains against the Pound after breaking news from the Bank of England.

The price of crude oil formed a retracement towards the end of the US trading session declining by 3.29% within 5 hours. However, this morning the price has formed a thin price range between $90.30 and $89.51. Traders will be looking at this price range for potential indications of either bullish or bearish breakouts.

Moving onto the cryptocurrency market. The price of Bitcoin is slightly lower this morning and has declined by 3.65% over the past 5 days. It’s being influenced by the ‘risk off’ sentiment across all markets, as well as the recent hacker attack on the Binance Smart Chain Network. The attack resulted in the loss of 2 million BNB tokens, which does not directly affect Bitcoin but can create an overall poor sentiment within the market. The total market capitalization for the cryptocurrency market was $954 million on Friday, which is slightly higher than the week before.

GBP/USD

The price of the GBP/USD pair saw high levels of volatility and lack of a clear breakout direction. GBP/USD broke out in both directions and corrected on both occasions. This is not surprising considering the price movement is mainly being triggered by news from the Bank of England. Currently, the price is trading 33 PIPslower than the market open and has formed a clear support level at 1.1018.

GBP/USD 5-minute chart on October 11th

One of the biggest concerns following the chancellor’s fiscal policy expansion was the reaction of the bond market, known as GILTS in the UK. This very quickly developed into the current UK bond market crisis which prompted a response from the Bank of England. The crisis was triggered by a strong “sell off” after investors became afraid that the UK government would fall into a deficit.

The Bank of England has confirmed this morning that it’s looking to expand its bond market intervention and will now also include purchases of index-linked GILTs. In simple terms, this means that the government is buying up government debt to try and stabilize the market. It’s similar to Quantitative Easing.

The price of the GBP is also being influenced by this morning’s Claimant Count Change which unexpectedly rose to 25,500 indicating labor weakness. UK’s CCC is now at a 19-month-high and considered negative for both the Pound and the UK indices. However, the Unemployment Rate had declined to 3.5%, potentially as a result of the new Prime Minister threatening to reduce certain government benefits.

S&P 500

The S&P 500 formed its fourth bearish trading session and significantly declined during this morning’s futures trading session. The decline during the future trading session can be deemed as an indication of the day’s “risk off” sentiment as all US indices are currently in the red. The price of the S&P 500 has formed a “double bottom”this morning which is now a clear support level for the price. However, the price movement and investor decision on whether to buy, sell, or hold will largely depend on Thursday’s inflation figures.

Even though the price will strongly be influenced by the latest inflation figures, investors are also concerned about several other factors. This includes the sudden spike in the price of the US Dollar as well as the price of oil. Higher oil prices are likely to increase expenditure and eat into consumer spending budgets. Lastly, investors are still concerned about the slowdown in the Chinese economy. The Chinese Caixin September Service PMI, published on Saturday, fell from 55.0 points to 49.3 points and ended up in a stagnation zone.

S&P 500 20-minute chart on October 11th

Quick Summary:

• USD increases for a 5th consecutive day, reaching a new monthly high.
• The Bank of England has confirmed that it’s looking to expand its bond market intervention and will now also include purchases of index-linked GILTs.
• The recent hacker attack on the Binance Smart Chain Network damages investor sentiment of the cryptocurrency market.
• The S&P 500 is being pressured from various factors but inflation figures will possibly be the pivotal point.