Sterling hits all-time lows against the dollar, catching BoE’s attention

Woman holds British pound banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/

NEW YORK, Sept 26 (Reuters) – The British pound hit an all-time low against the dollar on Monday as investors fear Britain’s new economic plan will hurt Britain’s finances, while the Bank of England said it is monitoring the Financial markets “very accurate”. ‘ following sharp moves in asset prices.

The dollar, helped by the fall in sterling and a new 20-year low for the euro, hit a two-decade high against a basket of six peer currencies.

In Japan, authorities reiterated their readiness to respond to speculative currency moves after intervening last week to strengthen the yen for the first time since 1998.

Sterling’s plunge, which had already fallen 3.6% on Friday after new Finance Minister Kwasi Kwarteng unveiled historic tax cuts funded by the biggest surge in borrowing since 1972, spread to markets, and the currency fell as much as 4.9% to an all-time low of $1.0327.

“UK markets are exploding again in the wake of the Truss government’s toneless fiscal liberality, delivered on Friday to a bond market abhorring any moves that encourage inflationary risk and higher debt issuance,” said Derek Holt, head of capital markets economics at Scotia Bank.

“How could the administration and their political misers so seriously misjudge the response to the spending of hundreds of billions of pounds,” he said.

The pound largely recovered from its overnight slide during the London session as traders speculated that the BoE might take emergency measures to stem the currency’s decline, but tumbled again after BoE Governor Andrew Bailey said the central bank was watching markets , but signaled no immediate action. Continue reading

Sterling was last down 1.64% at $1.0675.

Kwarteng on Sunday dismissed the currency’s freefall, saying he was more focused on longer-term growth and even hinted that more tax cuts were on the way.

“Market reactions show investors have lost confidence in the government’s approach, resulting in levels of volatility that put the pound on par with some emerging markets,” said Fiona Cincotta, senior financial markets analyst at City Index.

“There is a good chance that the BoE will now be forced to hike rates aggressively at the upcoming November meeting, barring emergency intervention before then,” she said.

The euro also hit a fresh 20-year low at $0.9528, and was last down 0.83%.

As of 12:05 p.m. Eastern time (1605 GMT), the dollar was up 0.875% to 114.11 against a basket of peer currencies, having previously touched 114.58, its strongest since May 2002.

“The focus is on the sterling but the story on the dollar is much broader and that’s the part that doesn’t help,” said Seema Shah, chief strategist at Principal Global Investors.

The dollar gained 0.8% to 144.535 yen, moving back to Thursday’s 24-year high of 145.90. It fell to around 140.31 on the same day after Japan implemented yen-buying intervention for the first time in more than 20 years.

Japan is estimated to have spent about $25 billion on this dollar-selling and yen-buying intervention, according to Tokyo money market brokerage firms.

China’s offshore yuan slipped to a new low of 7.1728 per dollar, its weakest level since May 2020. Onshore, the yuan also hit a 28-month low of 7.1690.

The new lows came even as the central bank said it would restore FX risk reserves on some futures contracts, a move that would make betting against the yuan more expensive and slow the pace of its recent depreciation.

The risk-sensitive Australian dollar fell 1.2% to $0.6452, its lowest since May 2020.

reporting by John McCrank in New York; additional reporting by Dhara Ranasinghe in London; Adaptation by Kirsten Donovan, Hugh Lawson and Chris Reese

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