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Sterling slides after BOE jumps into gilt market, dollar marches on

09/28/2022 | 07:42am EST

LONDON, Sept 28 (Reuters) - Sterling tumbled again on Wednesday after the Bank of England (BOE) said it would step in to prop up the gilt market, the latest sign of nerves in financial markets which helped nudge the dollar to its latest two-decade peak.

The BOE said it would buy as many long-dated government bonds as needed between now and Oct. 14 to stabilise financial markets, and added that it would postpone next week's start of its gilt sale programme.

As markets tried to digest what this meant for the pound, the currency whipsawed, jumping as high as $1.084 then falling, and was last down 1.5% at $1.0583.

"The pressure on UK rates to rise is breaking financial markets in the UK..., which means they (the BoE) had to move," said John Hardy, head of FX strategy at Saxo Bank.

"As the rest of the world is in tightening mode, this should be sterling negative. We have seen some oddball reactions as the market tried to deal with it, and there was a bit of shift in risk sentiment with people thinking ‘OMG is the Bank of England the canary in the coalmine, will other central banks have to shift?’, but it’s a bit early for that trade."

Long-dated British government prices soared after the announcement and the yield on the 30-year gilt slid around 30 basis points.

Sterling's move came against the backdrop of the dollar resuming its relentless climb.

The U.S. dollar index rose around 0.5% to hit a new high of 114.78, its march higher helped by an equally relentless climb from U.S. treasury yields. Benchmark U.S. 10-year Treasury yields rose to 4% for the first time since 2010, climbing as high as 4.013% before giving back these gains, as did European government bond yields, after the Bank of England's move.

The dollar's gains were broad-based, with the euro down 0.37% to $0.9557, and the Australian dollar, which is particularly sensitive to swings in investors sentiment, down 0.56%.

"Resistance (to dollar strength) is futile," ING analysts headlined a morning note.

"Whether it be U.S. data surprising on the upside, the U.S. Administration showing no concern at all with the strong dollar, or new chapters in the energy war in Europe, it looks like all systems are go for the dollar rally."

"Trying to pick a dollar top in the current climate is an exercise in futility."

Elsewhere, the yen was last at 144.7 per dollar, little changed on the day, but still near its lowest levels in years even after Japan's intervention to prop up the fragile currency last week.

Elsewhere in Asia, another milestone fell on Wednesday as China's onshore yuan extended losses to end the domestic session at its lowest level against the dollar since the global financial crisis. The offshore yuan hit a record low, pressured by expectations of further U.S. rate hikes.

There are signs that Chinese policy makers are becoming concerned. Reuters reported on Tuesday, citing a source, that Chinese monetary authorities are asking local banks to revive a yuan fixing tool it abandoned two years ago as they seek to steer and defend the rapidly weakening currency.

(Reporting by Rae Wee in Singapore and Alun John in London ; editing by Richard Pullin, Kim Coghill, Shri Navaratnam and Gareth Jones)

ę Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) -0.13% 0.5576 Delayed Quote.4.14%
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) -0.01% 0.90218 Delayed Quote.-1.55%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.11% 0.6491 Delayed Quote.1.77%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.15% 93.911 Delayed Quote.12.21%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) -0.11% 1.07967 Delayed Quote.1.87%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) -0.24% 0.6367 Delayed Quote.-3.58%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.00% 0.6748 Delayed Quote.-6.82%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) 0.09% 1.79174 Delayed Quote.-3.94%
BRITISH POUND / EURO (GBP/EUR) -0.06% 1.1629 Delayed Quote.-2.19%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.24% 168.274 Delayed Quote.7.79%
BRITISH POUND / US DOLLAR (GBP/USD) -0.15% 1.2093 Delayed Quote.-10.48%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) 0.01% 1.108426 Delayed Quote.1.57%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) -0.17% 0.61802 Delayed Quote.5.84%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.18% 0.71913 Delayed Quote.3.46%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) 0.05% 103.959 Delayed Quote.14.11%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.04% 0.7472 Delayed Quote.-5.27%
DOW JONES FXCM DOLLAR INDEX 0.10% 13006.27 Real-time Quote.6.93%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) 0.09% 1.53968 Delayed Quote.-1.73%
EURO / BRITISH POUND (EUR/GBP) 0.05% 0.85955 Delayed Quote.0.00%
EURO / JAPANESE YEN (EUR/JPY) 0.28% 144.646 Delayed Quote.10.24%
EURO / US DOLLAR (EUR/USD) -0.12% 1.0395 Delayed Quote.-8.46%
INDIAN RUPEE / AUSTRALIAN DOLLAR (INR/AUD) 0.11% 0.018142 Delayed Quote.-2.03%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 0.03% 0.010123 Delayed Quote.1.97%
INDIAN RUPEE / EURO (INR/EUR) 0.04% 0.011771 Delayed Quote.-0.21%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) 0.30% 1.703403 Delayed Quote.9.91%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.09% 0.012242 Delayed Quote.-8.76%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.04% 0.6799 Delayed Quote.-14.17%
MSCI SINGAPORE (GDTR) -0.36% 5607.31 Real-time Quote.-10.36%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.22% 86.941 Delayed Quote.10.18%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.21% 0.6245 Delayed Quote.-8.44%
UK 10Y CASH -0.01% 3.123 Delayed Quote.246.03%
US DOLLAR / AUSTRALIAN DOLLAR (USD/AUD) 0.25% 1.481921 Delayed Quote.7.32%
US DOLLAR / BRITISH POUND (USD/GBP) 0.16% 0.826925 Delayed Quote.11.70%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.00% 7.1642 Delayed Quote.12.56%
US DOLLAR / EURO (USD/EUR) 0.12% 0.962001 Delayed Quote.9.24%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.36% 139.1 Delayed Quote.20.45%
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