LONDON, Sept 29 (Reuters) – The pound fell again on Thursday as bond yields rose as the Bank of England’s emergency intervention brought only a brief lull to financial markets worried about the budgetary project defended by the British government.
Prime Minister Liz Truss said in a series of interviews with local BBC stations that deep tax cuts were the right solution for the UK and rejected the possibility of reversing the ” mini-budget” presented last week.
Yet it was the government’s fiscal program and its impact on government bond and sterling prices that prompted the central bank to announce on Wednesday that it would buy as many UK bonds as needed over the next two weeks to stabilize financial markets.
At this announcement, the currency recorded Wednesday its strongest daily increase since mid-June and European bond yields, but also American, fell.
But amid lingering doubts over the government’s fiscal management as the central bank scrambles to stem the level of inflation, the pound fell again, down 0.74% to $1.0807 around 09:05 GMT.
The yield on ten-year bonds gained nearly 15 basis points to 4.134%.
“There’s not much the BoE can do to support the pound as we believe FX intervention and emergency rate hikes are off the table,” said Chris Turner, chief executive. global markets at ING.
“Expect volatility to remain high (..) trying to hold sterling until the BoE meeting on Nov. 3 (..) will be a difficult challenge for policymakers,” he said. he adds.
Interventions by BoE officials David Ramsden, Silvana Tenreyro and Huw Pill during the day will be watched closely, as will Finance Minister Kwasi Kwarteng’s speech to his Conservative party on Monday.
“The pound is not out of the woods,” said Philip Wee at DBS. “The BoE seems to be attacking the symptom and not the cause”.
“The (..) government has not yet resolved the question of the credibility of its tax cut project, which critics consider to be an inflationary element”, added the strategist. (Samuel Indyk report with Harry Robertson, French version Laetitia Volga, edited by Nicolas Delame)