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Sterling helped by tax cut U-turn, yen steadies past 145 per dollar

10/03/2022 | 07:24am EST

SINGAPORE/LONDON, Oct 3 (Reuters) - Sterling rose on Monday after Britain reversed a plan to cut the highest rate of income tax, while the yen weakened past 145 per dollar, near the level where Japanese authorities intervened last month.

The pound touched $1.128 after media reports of the u-turn, its highest level since Sept. 22, the day before British finance minister Kwasi Kwarteng sent markets tumbling with a new "growth plan" to cut taxes and regulation, funded by vast government borrowing.

Having pared gains, sterling was last up 0.2% at $1.1188.

"We get it, and we have listened," Kwarteng said regarding the reversal of a plan to cut the 45% tax band, one contentious part of the package of measures which drove sterling to an all-time low of $1.0327 and sent gilts spiralling, prompting the Bank of England to step in.

"Clearly sterling has performed better on the news, but there are still a lot of questions, ultimately the 45 pence tax rate was only a small part of the unfunded tax cuts announced,' Jane Foley, head of FX strategy at Rabobank, said.

"The question remains is this enough? The answer will be clear in a few weeks’ time when the Bank of England measures end. UK assets, the pound and gilts are not out of the woods yet, and the British government has a lot to do to get back credibility."

Elsewhere, the Japanese yen weakened to 145.40 per dollar in Asia trade, past the 145 mark for the first time since Sept 22 when authorities intervened to prop up the currency.

The dollar was last up 0.24% at 145.1 yen.

"Each time (dollar/yen) gets to 145, it gets people excited. But it's the magnitude of the move that sometimes matters," Christopher Wong, a currency strategist at OCBC, said.

"That said, we remain watchful and won't rule out stealth yen intervention if the magnitude of the yen's decline increases again, perhaps when it breaches 146, using current levels as reference."

Monday's fall came as finance minister Shunichi Suzuki said Japan stood ready for "decisive" steps in the foreign exchange market if excessive yen moves persisted.

The yen has been weakening due to Japan's policy of keeping interest rates pinned down at a time when they are rising elsewhere. After much speculation, authorities last month intervened in markets, spending a record of 2.8 trillion yen ($19.7 billion) to prop up the currency.

The euro fell 0.2% to $0.97785, not helped by data that showed manufacturing activity across the euro zone declined further last month.

Reports from Reuters and others that the OPEC+ group of oil producers is discussing potential output cuts of more than 1 million barrels per day also weighed on the currency, given Europe's precarious energy situation.

That news, however, gave a small boost to the Norwegian crown and the Canadian dollar, with the U.S. dollar sliding around 0.5% on each of the commodity currencies.

The Australian and New Zealand dollars gained ground ahead of expected rate hikes by their central banks this week with the Aussie up 0.6% at $0.645 and the kiwi 1% higher at $0.5655.

(Reporting by Rae Wee; editing by Clarence Fernandez, Jason Neely and Andrew Heavens)

ę Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.02% 0.92645 Delayed Quote.0.52%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.53% 0.6451 Delayed Quote.0.50%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.01% 92.815 Delayed Quote.10.78%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) 0.56% 1.67284 Delayed Quote.-2.70%
BRITISH POUND / EURO (GBP/EUR) 0.43% 1.1638 Delayed Quote.-2.59%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.18% 167.458 Delayed Quote.7.33%
BRITISH POUND / US DOLLAR (GBP/USD) 0.21% 1.22594 Delayed Quote.-9.58%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.06% 0.696132 Delayed Quote.0.05%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.01% 100.056 Delayed Quote.10.33%
CANADIAN DOLLAR / SWISS FRANC (CAD/CHF) -0.03% 0.68404 Delayed Quote.-4.63%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.03% 0.7322 Delayed Quote.-7.04%
EURO / CANADIAN DOLLAR (EUR/CAD) 0.08% 1.43651 Delayed Quote.-0.05%
EURO / JAPANESE YEN (EUR/JPY) -0.01% 143.82 Delayed Quote.10.22%
EURO / US DOLLAR (EUR/USD) -0.23% 1.053 Delayed Quote.-7.16%
INDIAN RUPEE / EURO (INR/EUR) 0.01% 0.011511 Delayed Quote.-2.39%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) -0.29% 1.65637 Delayed Quote.7.51%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.21% 0.012127 Delayed Quote.-9.50%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.03% 0.6837 Delayed Quote.-13.68%
NEW ZEALAND DOLLAR / CANADIAN DOLLAR (NZD/CAD) 0.90% 0.87491 Delayed Quote.0.32%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.54% 87.591 Delayed Quote.10.66%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.51% 0.64089 Delayed Quote.-6.72%
US DOLLAR / CANADIAN DOLLAR (USD/CAD) 0.02% 1.3645 Delayed Quote.7.61%
US DOLLAR / EURO (USD/EUR) 0.23% 0.949668 Delayed Quote.7.71%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.01% 136.57 Delayed Quote.18.74%
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