British Pound and Euro Recover Against Dollar After BoE Buys UK Bonds

NEW YORK/LONDON, Sept 28 (Reuters) – After falling earlier, sterling rallied against the dollar on Wednesday following the Bank of England’s (BOE) purchase of British government bonds. ), leaving some air in the greenback’s advance after it hit a fresh 20-year high.

The BoE said it received 2.587 billion pounds ($2.78 billion) in offers in its first bond buyback operation aimed at stabilizing the market, and only accepted 1.025 billion pounds. . The central bank had pledged to buy as many long-term government bonds, called gilts, as needed between Wednesday and October 14.

As markets tried to digest what the move meant for the pound, the currency surged higher during Wednesday’s session, jumping as high as $1.09165 and falling as low as $1.05390. It was last up 1.51% at $1.08921.

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The BoE’s intervention has largely boosted currency trading, according to Erik Nelson, macro strategist at Wells Fargo.

“You had financial stress everywhere. Yields were going up and the dollar was going up. It was sort of feeding on itself. We needed something or someone to stop the financial stress and financial panic that was happening The BoE stepped in,” Nelson said. “Easing financial strains helped the pound and other currencies rally against the dollar.”

But the relief for the pound may be temporary as the UK still faces macroeconomic trends such as high inflation.

“It’s negative monetary policy. You’re proposing to limit the rise in yields at a time of high inflation,” Nelson said. “The dollar is going to continue to rise over the next few months. … The US is growing at a much more solid pace, at least for now, compared to the UK and Europe, and the United States does not have the same type of energy crisis as the United Kingdom and Europe.”

Currency investors are also watching Russia’s war on Ukraine and energy uncertainty in Europe after leaks on Nord Stream pipelines between Russia and Europe released gas into the Baltic Sea, Brad said. Bechtel, global head of foreign exchange at Jefferies in New York. NATO Secretary General Jens Stoltenberg and others attributed the leaks to acts of sabotage.

The dollar index, which measures the greenback against a group of major currencies, was last at 112.660 after hitting a new 20-year high at 114.78.

While the Dollar initially saw broad-based gains, the Greenback rallied sharply as the US trading session progressed, with the Euro lately rising 1.52% to $0.9739 after trading dropped to $0.95355.

The Dollar was last down 0.61% against the Japanese Yen at 143.955 after hitting a high of 144.860.

The Australian dollar, which is particularly sensitive to swings in investor sentiment, last appreciated 1.410%.

Elsewhere in Asia, the offshore yuan hit a record low, under pressure from expectations of further rate hikes in the United States.

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Reporting by Sinéad Carew in New York, Rae Wee in Singapore and Alun John in London; edited by Richard Pullin, Kim Coghill, Shri Navaratnam, Gareth Jones and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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