Falling pound pauses as investors await policy response
Sterling steadied this morning but was perched above its record low only thanks to soaring yields on British debt and the hope of a response from policymakers or politicians.
The pound’s movements were unnerving markets to the benefit of the dollar.
On Friday and again yesterday the pound plunged, finding a record low of $1.0327 as investors question Britain’s economic gambit of unfunded tax cuts to spur growth.
It has bounced back to $1.0770, helped by the Bank of England promising to monitor markets and hike if necessary, and a bloodbath in gilts that has driven an incredible 100 basis point rise for two-year yields in just two trading days.
Bank of England chief economist Huw Pill appears at a policy forum later this morning and his response to the turmoil will be closely watched and analysts are wary of the currency’s recovery.
“We should expect the pound to remain volatile in the week ahead as market participants await to see how policymakers in the UK respond to the loss of confidence in the pound and gilts,” said Lee Hardman from MUFG Bank.
“Without timely policy action this week cable could quickly fall below parity.”
Sterling has dropped 5% since Thursday and 21% this year against a backdrop of an ever stronger dollar.
The greenback has climbed as expectations solidify for US interest rates staying higher for longer, and as sudden moves like the pound’s rattle traders.
As the pound fell yesterday, the dollar surged to new highs on the euro and many more.
Japan intervened to support the battered yen for the first time in decades last week, which has been enough to stave off too many further losses for the yen, for now.
The yen last traded at 144.39 per dollar.
The US dollar index, which measures the dollar against a basket of six majors, hit a 20-year high of 114.58 and was off that a bit at 113.87 this morning.
The euro made a two-decade low of $0.9528 and is weighed down by an energy crisis and new risks of war in Ukraine escalating. It was a cent above that at $0.9626 in Asia trade.
The Aussie and kiwi hit two and a half year lows yesterday and were attempting bounces today, with the Aussie up 0.3% to $0.6479 and the kiwi up 0.8% to $0.5670.
China’s yuan also hit a two and a half low yesterday and was steady at 7.1639 today.