GBP/USD holds steady around 1.0700 after BoE announces purchases of UK government bonds

• GBP/USD struggles for a firm direction and witnesses good two-way price moves on Wednesday.
• The BoE announces temporary purchases of long-dated UK government bonds and offers support.
• Aggressive Fed rate hike bets remain supportive of relentless USD buying and act as a headwind.

The GBP/USD pair meets with a fresh supply on Wednesday and remains on the defensive through the first half of the European session. Spot prices, however, manage to rebound a few pips from the daily low and now seem to have stabilized around the 1.0700 round-figure mark.

The pair benefits from a minor lift after the BoE announced it would carry out temporary purchases of long-dated UK government bonds, though the immediate market reaction turns out to be short-lived. The fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside. That said, oscillators on short-term charts are flashing extremely oversold conditions and holding back traders from placing fresh bearish bets.

Meanwhile, a combination of supporting factors lifts the US dollar to a fresh two-decade high, which, in turn, exerts some downward pressure on the GBP/USD pair. The overnight hawkish remarks by Fed officials reaffirm the prospects for a more aggressive policy tightening by the Fed and remain supportive of elevated US Treasury bond yields. In fact, the benchmark 10-year US Treasury note held steady near its highest level since April 2010, which, along with the prevalent risk-off mood, continues to underpin the safe-haven greenback.

The British pound, on the other hand, is weighed down by the lack of confidence in the UK government’s ability to manage the ballooning debt. This is reinforced by the recent sell-off in the UK fixed income market, pushing the 30-year gilt to its highest level since 2007. The concerns were sparked by the new UK government's mini-budget announcement last week and the plan to subsidise energy bills for households and businesses. This threatens to derail the Bank of England’s efforts to tame inflation and creates additional economic headwinds.

There isn’t any major market moving data due for release from the UK, while the US economic docket features the only release of Pending Home Sales data later during the early North American session. This, along with speeches by influential FOMC members, including Fed Chair Jerome Powell, and the US bond yields, might influence the USD price dynamics and allow traders to grab short-term opportunities around the GBP/USD pair.

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