TOKYO, Sept 29 ― Sterling retreated again today from a sharp bounce against the dollar overnight, after the Bank of England announced unlimited bond purchases to shore up Britain's financial markets battered by the government's radical plans to cut taxes.

The UK currency jumped the most since mid-June yesterday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than £1 billion (RM5 billion). It committed to buying as many long-dated gilts as needed until October 14.

Sterling was 0.51 per cent lower at US$1.0831 as of 1200 GMT, returning some of the previous session's 1.41 per cent rally. The euro weakened 0.32 per cent to US$0.97065, following yesterday's 1.51 per cent surge, the biggest since early March.

Sterling had plummeted to a record low of US$1.0327 on Friday as investors delivered a scathing verdict on the new government's plan for record tax cuts funded by a massive increase in borrowing, at the same time as the BoE is aggressively tightening monetary policy to rein in rampant inflation.

Europe's shared currency had plunged to a new two-decade low of US$0.9528.

“The BoE's bond purchases may temper the UK government's borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Concerns about the UK's fiscal plan and its broader economy suggest GBP will likely stay offered against the USD and other major currencies in the near term.”

The US dollar index, which measures the greenback against sterling, the euro and four other major peers, edged 0.07 per cent higher to 113.11, heading back in the direction of yesterday's 20-year high of 114.78.

The dollar added 0.23 per cent to ¥144.43. The currency pair has kept its head below the 145 line since Japanese officials intervened a week ago, following a surge to a 24-year high of 145.90 that day.

Elsewhere, the risk-sensitive Australian dollar sank 0.38 per cent to US$0.64995, giving back some of yesterday's 1.34% climb.

New Zealand's currency dropped 0.42 per cent to US$0.5706, following a 1.7 per cent surge in the previous session. ― Reuters