Fightback pushes sterling above $1.11: Pound rebounds from record low
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Fightback pushes sterling above $1.11: Pound recovers from record low after Kwasi pledge on bonds
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The pound fought back in global currency markets after plummeting to an all-time low against the US dollar.
In another day of turmoil in financial markets around the world, the pound sterling rose again above $1.11, drawing it close to where it was before Chancellor Kwasi Kwarteng delivered last week’s controversial mini-Budget. .
The pound is up about 7 percent against the dollar since it crashed to a low below $1.04 on Monday. Against the euro, it rose above €1.13 for the first time since last week.
Recovery: Sterling rose again above $1.11, moving it touchingly away from where it was before Chancellor Kwasi Kwarteng delivered last week’s controversial mini-budget
Like other currencies around the world, the pound has been crushed by the dollar this year as the US Federal Reserve tries to tame skyrocketing inflation through higher interest rates. The dollar has also benefited from its status as a safe asset in times of economic struggle.
But the pound took an aggressive plunge in the wake of the mini-budget as investors worried about more than £45bn in unfunded tax cuts and a cap on energy bills that could cost £100bn.
The Bank of England has also been criticized for acting too slowly and meekly to fight inflation, which hit 10 percent this summer for the first time in four decades.
The currency chaos spread to bond markets, forcing the Bank to intervene on Wednesday with a pledge to buy long-term UK government debt to restore order.
In a speech to business leaders in London last night, Huw Pill, the chief economist at the Bank of England, said there would be a “major” response to recent events when the rate-setting Monetary Policy Committee meets again in early November.
Many observers expect the Bank to raise interest rates by as much as one percentage point – much larger than the 0.25 and 0.5 percentage point moves so far this year.
The bond market intervention and the prospect of further rate hikes lifted the pound.
Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Connecticut, said: “The Bank of England has taken quite a decisive step in stabilizing the markets. And that is positively received by the foreign exchange market.’
But as inflation ran rampant and global interest rates rose, government borrowing costs in the form of bond yields rose again in the UK, US and Europe.
Neil Wilson, an analyst at Market, said, “I’ve rarely seen sentiment this bad. “We are doomed” seems to be the predominant mood.
“We haven’t seen the bond markets move this much in years. Stocks are hovering around the two-year low and the dollar is moving quietly, crushing everything in its path.”