LONDON, Sept 27 — The British pound was higher against the dollar today, a day after hitting a record low, as the Bank of England and UK Treasury attempted to soothe market concerns after the government announced a raft of unfunded tax cuts.
The battered pound hit an all-time low of US$1.0327 (RM4.76) today, prompting calls for a big inter-meeting interest rate hike from the Bank of England, and although the bank and government acknowledged the turmoil in markets, they stopped short of any concrete action.
The BoE “will not hesitate” to raise interest rates if needed to meet its 2 per cent inflation target, governor Andrew Bailey said yesterday. The BoE’s next scheduled monetary policy meeting is on November 3.
“I think the statements from the Bank of England and the Treasury have helped the pound,” said Stuart Cole, head macro economist at Equiti Capital.
“The BoE saying it won’t change course has helped the recovery in sterling as it conveys a message that there’s no sense of panic at the central bank,” Cole added.
By 0836 GMT today, the pound was up 1.2 per cent against the dollar at US$1.0817. It’s still down around 20 per cent versus the greenback this year.
The euro was down 1 per cent against sterling to 89.10 pence.
Still analysts remained cautious about the longer-term outlook for the pound and forecasts for the currency to reach parity against the dollar have become increasingly common.
“Sterling is not out of the woods by any means,” Equiti’s Cole said.
“The BoE are required to tighten interest rates which will exacerbate the slowdown in growth,” Cole added, comparing the situation to 1992 when interest rate rises failed to support the currency.
The BoE’s statement came just minutes after the UK Treasury announced that a forecast from the Office for Budget Responsibility and medium-term fiscal plan would be published on November 23, in an attempt ease concerns about the credibility of the new fiscal plans which sent the pound and gilts in to a tailspin.
On Friday, finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing, pushing gilt yields to their highest in years in historic moves.
Britain’s two-year gilt yield surged over 100 basis points in two days but is down 10 basis points tomorrow at 4.149 per cent. Bond yields move inversely with prices.
Attention is now likely to turn to the appearance of BoE chief economist Huw Pill at a panel event, scheduled to kick-off at 1100 GMT.
“UK markets will now be hyper-sensitive to any communication from UK policymakers,” said ING head of markets Chris Turner in a note.
“We doubt he will offer more than what was in yesterday’s BoE statement, but on a day in which the dollar is consolidating, GBP/USD could trace out something like a 1.07-1.09 range,” Turner added.
Pill voted with the majority to raise interest rates by 50 basis points at last week’s policy meeting.
Policymakers Jon Cunliffe, Dave Ramsden and new member Swati Dhingra are all scheduled to speak later this week. — Reuters
