According to the latest report by Deutsche Bank, Bank of England faces heavy losses from the bonds it recently purchased to support the UK economy.

The Bank of England estimated in last  July it'll ask the UK treasury for 150 billion pounds of support to recoup the losses of the assets purchases program, which extended from 2009 to 2022. 

The program was aimed at improving the financing conditions of the companies damaged by the 2008 financial crisis, with Bank of England accumulating over 895 billion pounds of bond purchases when interest rates were at record lows.

Bank of England started to offload its holdings last year, by halting such operations and offering its bonds for sale in a pace of 80 billion pounds a year, starting October 2022. 

However, Bank of England and the UK Treasury expect the plan to carry heavy losses as interest rates surge and the value of the bonds diminish. 

Indeed, latest official UK treasury data showed the ministry transferred 14.3 billion pounds in July to Bank of England to cover its losses from the assets purchases program.

Deutsche Bank expects such losses to compound in upcoming years for two reasons: 

The first, is much higher UK interest rates than previous expected by UK authorities.

The second, the decline in gold prices led to losses of valuation, as BOE links its assets to active gold sales.

Double Hit

Analysts believe such developments will pose heavy losses to the UK government, as the treasury is responsible for carrying losses of Bank of England if bonds were to be sold by lower than their original value. 

In addition, Bank of England continues to pay the interest rates on such bonds valuing 900 billion pounds, and with higher interest rates, the costs of the bonds are rallying. 

Estimated Costs

Deutsche Bank analysts expect the UK treasury to carry costs nearly 23 billion pounds higher than initial expected because of the BOE quantitative easing program.

The overall all cost will be 48.7 billion pounds this financial year, and 38.1 billion pounds in the next financial year.

However the  goods news is, the UK government revenue continues to increase as the economy strengthens and expands decently in 2023. 

Gold prices fell in European trade on Wednesday for the first time in three days on profit-taking under pressure from the stronger dollar.

Gold's decline remain limited ahead of major US data on private sector employment and GDP growth in the second quarter. 

Such data will provide fresh pricing for US interest rate prospects especially after recent disappointing US data.

Gold Prices Today

Gold prices fell 0.15% to $1,935 an ounce, with a session-high at $1,937, after rising 0.95% yesterday, the second profit in a row, marking a three-week high at $1,938, as dollar and US treasury yields declined following grim US data.

The Dollar

The dollar index rose 0.2% on Wednesday after hefty losses in the last two sessions against a basket of major rivals.

Traders now await important US data later this week to gauge the likely path ahead for US monetary policies.

Shocking Data

Recent US data showed US JOLTS Job Opportunities tumbled to 2-1/5 year lows in July, while US consumer confidence plunged in August.

US Rates

Following the data, pricing for a 0.25% US interest rate hike in September fell from 20% to 13.5%.

Odds for a 0.25% interest rate hike in November fell from 62% to 49%.

Fresh Data

Now investors await fresh data to better gauge the likely path ahead for US monetary policies, including data on US private sector employment, and GDP data. 

The SPDR

Gold holdings at the SPDR Gold Trust rose 2.59 tonnes yesterday, the second increase in a row, to a total of 889.23 tonnes, the highest in ten days. 

Oil prices rose in European trade on Tuesday away from four-week lows amid Chinese vows to accelerate financial spending in the country to boost the economy. 

Prices are also boosted by expectations Saudi Arabia will extend its voluntary production cuts for another month, paving the way for a supply deficit this year.

Later today, traders await initial data on US crude stocks from the American Petroleum Institute, expected to show another drawdown.

Global Oil Prices

US crude rose 1.1% to $80.80 a barrel, while Brent climbed 1% to $84.56 a barrel, with a session-low at $83.59. 

US crude lost 0.1% on Monday while Brent slipped 0.4%, as recovery efforts took a backseat. 

Chinese Pledges

China vowed to reinforce political and financial support to boost the struggling economy. 

The pledges came from the finance minister in China, who vowed to take new measures to control volatility and coordinate different policies to accelerate growth.

Indeed, the Chinese government yesterday announced a steep cut in stock trading taxes to boost the market. 

Such measures, in addition to the storm barrelling towards southeastern USA, Brent is expected to edge above $85 a barrel.

Saudi Production 

Many analysts expect Saudi Arabia to extend its voluntary production cuts by a million bpd for the third month in a row until the end of October.

Riyadh already extended its production cuts until the end of September, while Russia vowed to cut its crude exports by 300 thousand bpd next month.

Thus analysts believe the oil market is heading for a considerable deficit as the Saudi cuts will deepen market shortages to three million bpd in the third quarter of the year according to some estimations.

US Stocks

Later today, the American Petroleum Institute will release data on US crude stocks, expected to show an inventory drawdown for the third week in a row. 

Dollar rose in European trade against a basket of major rivals after a hiatus from gains yesterday, as momentum remains strong for the greenback.

Such momentum is carried by strong prospects for a Federal Reserve interest rate hike at the November meeting.

Now investors await later important US data on the housing sector and and consumer sentiment to better gauge the likely path ahead for monetary policies.

The Index

The dollar index rose 0.25% to 104.17, with a session-low at 103.83, after falling 0.15% on Monday, the first loss in three days on profit-taking off eleven-week highs at 104.45. 

Fed Chair Jerome Powell said in Jackson Hall the Fed will move cautiously if further policy tightening is required, and otherwise will maintain interest rates unchanged in wait for more data.

Powell asserted the Fed's goal to bring inflation back to the 2% medium-term, target.

Cleveland Fed President Loretta Mister said that overcoming inflation will likely require another interest rate hike this year.

US Rates

Such aggressive remarks boosted the odds for a 0.25% US interest rate hike in September to 20%.

While odds for a 0.25% interest rate hike in November surged to 62%.

Important Data

Investors await a variety of US data later today to better gauge the likely path ahead for US monetary policies. 

US Housing Prices Index is expected down 1.5% in June, while the CB consumer sentiment index is expected down slightly to 116 in August from 117.0.

The US JOLTS Jop Opportunities index is expected to show 9.49 million vacancies in July, down from 9.58 million in June.