Pressure on the British pound has grown after the Bank of England warned of parallels between the $1.7 trillion private credit boom and the subprime lending crisis, as UK officials confirmed plans to stress test the market.

Bank of England Governor Andrew Bailey told a parliamentary committee on Tuesday that there are worrying signs in the sector. He referred to conversations with industry representatives who assured him that "everything's fine in our world"—except for the role of rating agencies, which, he noted, echoed the confusion over debt quality seen during the securitization of subprime mortgages. "We're not going to run that movie again, are we?" Bailey said during hearings of the House of Lords Financial Services Regulation Committee in London.

The comments from the head of the UK's central bank—who also chairs the Basel-based Financial Stability Board—were the latest warning about the state of the global private credit market. Sarah Breeden, the Bank of England's Deputy Governor for Financial Stability, recently pointed to the market's opacity, leverage, and links to banks as key risks for the sector.

According to policymakers, the lending sector has expanded significantly since the 2008 financial crisis. It is also flooded with capital from insurance companies, which require credit ratings for regulatory purposes. Companies are creating increasingly complex structured products, such as investment-grade rated fund-backed bonds, partly to attract insurance capital—further pumping money into the market.

There are growing fears that any problems arising in this sector and the broader leveraged credit markets could quickly spread to banks and the wider economy following the recent collapses of U.S. companies First Brands and Tricolor. These cases prompted JP Morgan Chase & Co. CEO Jamie Dimon to warn: "If you see one cockroach, there are probably more."

Leaders of private credit firms responded by claiming that the problem lies with loans issued by banks and should not be viewed as evidence of growing risks from new players entering the lending market. Nevertheless, Bailey noted that whether cases like First Brands are isolated incidents remains an open question.

It's worth recalling that in the run-up to the 2008 financial crisis, creative loan packaging led to risky loans being rebranded as collectively safe securities. The result was hundreds of billions in losses, the collapse of Lehman Brothers and Bear Stearns, and a global financial crisis that suppressed world economic growth for more than a decade.

As for the current technical outlook for EUR/USD, buyers now need to focus on breaking the 1.1630 level. Only then can they target a test of 1.1655. From there, a move to 1.1700 is possible, though achieving this without support from large players will be quite difficult. The furthest target is the 1.1725 high. In case of a decline, I expect significant buyer activity around 1.1605. If no one steps in there, it might be worth waiting for a renewal of the 1.1575 low or opening long positions from 1.1545.

As for the current technical outlook for GBP/USD, pound buyers need to take out the nearest resistance at 1.3400. Only this will allow targeting 1.3440, above which a breakout will be quite challenging. The furthest target is the 1.3485 level. If the pair falls, bears will try to take control at 1.3360. Should they succeed, breaking that range would deal a serious blow to the bulls' positions and push GBP/USD down to a 1.3330 low, with potential to reach 1.3300.