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Bond market selloff after BoE signals more tightening

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By Edward Moya  

Wall Street is watching a global bond market selloff get uglier as US stocks wavered late Thursday ahead of massive earnings from Apple and Amazon.

A lot of economic data confirmed how resilient the US economy remains. Both initial jobless claims still remain low and the ISM services employment component supports the argument that the Fed might need to deliver more tightening in November.

The global bond market selloff extended and the British pound weakened against the US dollar as the Bank of England decided to only go with a quarter-point rate rise.

FX traders thought the statement was rather dovish, but sterling reversed losses after BoE Governor Andrew Bailey expressed concerns about service inflation. ​ With only two MPC members voting for a half-point rate rise, the market is growing confident that the BoE might only have two quarter-point rate rises left.

After hitting a one-month low, GBPUSD is in this awkward moment as the BoE seems easily positioned to deliver more tightening than the Fed, but that could be followed by a stronger economic performance by the US economy. ​

The bond selloff could also rattle markets and lead to strong safe-haven flows towards the US dollar and Japanese yen. ​ If the greenback remains bid, GBPUSD could see downside momentum target the 1.2600 region. ​ To the upside, the 1.2825 level provides initial resistance.

Oil

Crude oil prices rallied after the Saudis did what everyone expected them to do, they extended output cuts. ​

Saudi Arabia is doing whatever it takes to defend oil prices and that could mean we could be seeing $90 oil soon. ​ The only thing getting in oil’s way is a weakening global outlook, as several advanced economies are starting to feel the impact of central bank tightening.

A strong dollar has been getting in oil’s way, but that might not extend much longer if sentiment improves once we get beyond mega-cap tech earnings and Friday’s NFP report. ​ The short-term crude demand outlook should hold up as it is clear as day that the US economy is weakening, albeit at a slow pace.

Gold

Gold should start attracting once we see the bond market selloff cool off. ​

The US might have some debt issues over the coming years and that should keep gold supported. ​ While the US economy has been very resilient, the Fed’s work will likely be done after one more rate hike. ​

Gold should start to see stronger safe-haven flows as the stock market seems like it won’t be making a run towards record high territory anytime soon.

The strong dollar trade might last a little while longer, so gold’s struggles might see a test of the $1950 region before buyers emerge.

Bitcoin

Bitcoin continues to hold onto the $29,000 level as a lot of altcoins weaken. ​

Cryptos like dogecoin, Solana, Cardano, were supposed to have greater growth potential, but they are also vulnerable to surging borrowing costs. ​

If global bond yields continue to surge, this could spell trouble for large parts of the cryptoverse, which might see altcoins get sold and those funds might flow back into Bitcoin. ​

 

Edward Moya is Senior Market Analyst, The Americas at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.