GBP/USD dives below 1.1000 as Bailey spooks investors

• The pound dives below 1.1000 on the back of BoE Bailey’s comments.
• Unprecedented volatility in the long end of the gilt market.
• GBP/USD: Below 1.0905, the next target might be 1.0540 – BBH.  

The British pound has extended its reversal from session highs near 1.1180 to hit lows at 1.0965 after BoE Governor Andrew Bailey spooked investors, revealing the latest monetary policy measures to stabilize the financial system.

Bailey has warned about unprecedented volatility in the long end of the gilt market and urged pension fund managers to finish rebalancing their portfolios by Friday when the bow is planning to end its emergency support program for the country’s bond market.

The Bank expanded the bond-buying program on Tuesday to include inflation-linked debt, two weeks after having launched it in an attempt to manage the turmoil in the bond markets triggered by Prime Minister Liz Truss’s announcement of unfunded tax cuts.

The pound has dropped sharply on the back of Bailey’s comments, with the pair turning negative on daily charts, on track to post a more than 4% reversal over the last five days, after peaking near 1.1500 last week.

 GBP/USD: Below 1.0905, the pair might test 1.0540 – BBH

FX analysts at BBH, see the pair accelerating its downtrend below 1.0905:  “A break below 1.0905 would set up a test of the September 28 low near 1.0540 (…) Only time will tell, but we note that whatever measures the BoE takes, it can only address the symptoms (disorderly markets) and not the underlying malady (irresponsible fiscal policy). Only the government can turn this thing around.”

Technical levels to watch