Sterling falls after BoE buys bonds, dollar hits 20-year high

NEW YORK/LONDON, Sept 28 (Reuters) – Sterling fell against the dollar on Wednesday before paring some losses after the Bank of England (BOE) said it would step in to prop up the gilt market, and the dollar index hit a fresh 20 – year’s high trading was volatile.

The BOE said it would buy as many long-dated government bonds as needed between now and Oct. 1[ads1]4 to stabilize financial markets, adding that it would delay next week’s start of its gilt sales program. read more

As markets tried to digest what this meant for the pound, the currency lashed out, jumping as high as $1.084 and falling as low as $1.0539. It was last down 0.4% at $1.0695.

“They’re really trying to help the structure of the gilt market, more than anything else… The fact that they’re actually doing (quantitative easing) again at the same time as raising interest rates confuses the outlook for monetary policy,” said Brad Bechtel, global head of FX at Jefferies in New York.

“It also forces the pound to be the escape valve for the additional spending proposed by the government.”

Investors also looked to the safety of the dollar against a backdrop of political uncertainty after leaks on the Nord Stream pipeline between Russia and Europe spewed gas into the Baltic Sea. NATO Secretary General Jens Stoltenberg attributed the leaks to acts of sabotage. read more

“Some of it is security-related, given what we saw yesterday with NordStream and the Russia-Ukraine situation,” Bechtel said, also referring to the Federal Reserve’s aggressive rate hike cycle aimed at taming inflation

“It’s the Fed, which is doing better in terms of being aggressive and continuing to hike aggressively. The world is realizing that the US is in a better position to handle higher interest rates, while other economies are more vulnerable.”

The dollar index, which measures the greenback against a group of major currencies, was last at 114,100, after hitting a new 20-year high of 114.78.

While the greenback’s rally was initially broad-based, the dollar eased in US morning trading with the euro last easing 0.02% to $0.9595 after falling as low as $0.95355.

The dollar was last down 0.22% against the Japanese yen at 144.510 after touching a high of 144.860.

The Australian dollar, which is particularly sensitive to swings in investor sentiment, was last up 0.420%.

Elsewhere in Asia, the offshore yuan hit a record low, pressured by expectations of further US interest rate hikes. read more

Reporting by Sinéad Carew in New York, Rae Wee in Singapore and Alun John in London; editing by Richard Pullin, Kim Coghill, Shri Navaratnam, Gareth Jones and Jonathan Oatis

Our standards: Thomson Reuters Trust Principles.