The Bank said it will carry out temporary purchases of bonds and postpone the planned start of its gilt sale programme.

Sterling was last down 0.6% to $1.0675, after hitting a session low of $1.0618. The euro was up 0.3% against the pound after the Bank's announcement at 89.74 pence.

The Bank's dramatic move came after traders reported disorder in the gilt market.

UK government bonds have cratered in recent days after new Finance Minister Kwasi Kwarteng announced plans to slash taxes and ramp up borrowing. That sent yields, which move inversely to prices, soaring.

But the Bank's intervention appeared to calm the market on Wednesday, sending the yield on the 30-year benchmark gilt down by more than 50 basis points at one point.

Kwarteng's fiscal statement - and his vow that there was more to come - shocked investors and sent the pound crashing on Monday to a record low of $1.0327.

Sterling pared some of its losses on Tuesday, after Bank of England chief economist Huw Pill suggested the central bank would have to raise interest rates sharply in November.

Kenneth Broux, currency strategist at Societe Generale, said the Bank had to intervene because "confidence has totally evaporated".

"The surge in bond yields threatens the housing market and broader economy. But the BoE still has to raise the policy rate," he said.

John Hardy, head of foreign exchange strategy at Saxo Bank, said: "All other things being equal this should be sterling negative."

Analysts said dollar strength was also weighing heavily on the pound. Investors have rushed to the safety of the dollar this year as the global economy has slowed and market volatility has picked up.

The dollar index hit a new 20-year high of 114.78 on Wednesday, and was last up 0.29%.

Chris Turner, global head of markets at ING, said: "We're in the really powerful phase of a dollar rally. It's an inopportune time for UK policymakers to come out with an unfunded fiscal stimulus package."

(Reporting by Harry Robertson and Alun John; editing by Amanda Cooper and David Evans)

By Harry Robertson