GBP/JPY rallies to 163.00 amid rumours of bond-buying extension

• The pound shrugs off the previous weakness to bounce up towards 163.00.
• Rumours about the extension of the BoE's bond-buying are buoying GBP.
• Downbeat GBP data confirm fears of a recession in the UK.

The British pound is showing a strong recovery after having lost more than 3% on its reversal from the 165.70 high last week. The pair has bounced right below 160.00 on Wednesday to approach the 163.00 area, buoyed by rumours that the BoE might extend its emergency program.

Mixed signals about BoE’s bond-buying program

A Financial Times news report suggesting that the Bank of England might have signaled privately to lenders that it is open to extending its bond-buying program has cheered investors, pushing the battered GBP higher against its main rivals.

The Bank of England spooked the market on Tuesday when BoE Governor Andrew Bailey urged pension fund managers to rebalance their portfolios before Friday, the deadline for the bank’s emergency program.

Beyond that, additional media reports point out that the British Government might be ready to scrap more elements of the mini-Budget that rattled financial markets.

The GBP/JPY lost about 1.5% on the back of Bailey’s words on Tuesday, to complete a 3.4% decline over the previous five days. The pair, however, is regaining lost ground on Wednesday showing a nearly 2% recovery despite the downbeat macroeconomic data.

UK economy contracts against expectations

British economy contracted at a 0.3% pace in August, against market expectations of a 0% reading and following a 0.1% expansion in the month before. These figures confirm predictions that the UK economy could be entering recession over the next months.

Manufacturing production has dropped at a 1.6% pace, which has been one of the main reasons for the economic contraction.

Technical levels to watch