NEW YORK, Sept 29 (Reuters) – The pound rose sharply on Thursday in volatile trade, rebounding from record lows hit on Monday, after the Bank of England conducted a second day of bond buying to stabilize financial markets.
The pound posted its biggest one-day percentage gain since March 2020 and last traded at $1.1076, up 1.8%. After hitting an all-time low of $1.0327 three days ago, the pound has rebounded more than 7% against the dollar.
The recovery of the British currency is partly due to the action of the BoE. The BoE bought 1.415 billion pounds ($1.55 billion) of UK government bonds with a maturity of more than 20 years on Thursday, the second day of a multi-billion pound program to stabilize the market. Read more
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“The BoE is being creative and willing to respond to wild markets,” said Greg Anderson, global head of currency strategy at BMO Capital Markets in New York.
But he noted that the pound’s gains following BoE moves are not sustainable.
“Whenever a central bank undertakes a temporary intervention program, the market will definitely test it and see if the central banks will continue to do so or not. go Pause.”
Anderson added that he would be a seller of the pound at $1.10, with the likelihood of the currency falling back to $1.05.
The pound initially fell on Thursday as Prime Minister Liz Truss defended her tax cut budget.
The dollar, on the other hand, depreciated against a basket of major currencies. It was last down 0.4% at 112.148.
The euro rose 0.7% against the dollar to $0.9804.
Data showed that economic sentiment in the eurozone fell sharply and more than expected in September, with business and consumer confidence also falling on price developments in the months ahead. Read more
However, the focus has been on German inflation, which jumped to 10.9% this month, well above expectations of a 10% reading. That suggests the figure for the enlarged 19-country eurozone, due on Friday, is also likely to top the 9.6% expected, bolstering the case for a further 75 basis point increase at the Central Bank’s next policy meeting. European.
That said, some analysts think the potential ECB action is likely just a short-term boost for the euro.
“Rate hikes can support a currency… But the inflation process is never good for a currency, especially if inflation has not been properly brought under control by the central bank,” said Stephen Gallo, European chief of FX strategy at BMO in London. .
“I wouldn’t want to own the euro just because the ECB is going up. I would want to own the euro when the US dollar peaks, and when it becomes clear that eurozone inflation is moderating and it becomes clear that the bloc is clear of a massive recession.”
In other currency pairs, the dollar rose 0.2% to 144.355 yen.
Japan stepped in last week to support a struggling yen. Finance Minister Shunichi Suzuki said Thursday that Japan’s recent monetary intervention was aimed at correcting market distortion caused by speculative currency movements. He signaled that he was ready to intervene again if speculation persists.
Elsewhere, China’s offshore yuan rebounded around 1% to 7.0894 to the dollar after Reuters reported state banks were told to stock up for yuan intervention. Read more
The risk-sensitive Australian dollar fell 0.4% to US$0.6494. A new measure of consumer prices showed that annual inflation eased slightly from August to July, raising hopes that cost pressures could be close to peaking.
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Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Joice Alves in London, Kevin Buckland in Tokyo and Tom Westbrook in Singapore; Editing by Angus MacSwan, Alex Richardson, Jonathan Oatis and David Gregorio
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