Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Surges Higher, Pound Retreats as BOE Relief Doesn't Last

Published 2022-09-29, 03:30 a/m
Updated 2022-09-29, 03:30 a/m
© Reuters

© Reuters

By Peter Nurse

Investing.com - The U.S. dollar resumed its seemingly relentless march higher in early European trading Thursday, while sterling slumped as the relief rally attached to the Bank of England’s intervention into the bond market dissipated.

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.8% to 113.438, rebounding close to its recent two-decade high of 114.653 after its worst session in more than two years.

The Bank of England announced an emergency bond-buying on Wednesday, attempting to shore up the gilt market which had slumped, along with the pound, after the new U.K. government announced substantial tax cuts, likely funding by hefty borrowing.

The British currency jumped the most since mid-June as a result, but this bounce hasn’t lasted long, with GBP/USD dropping 0.9% to 1.0787 on Thursday.

This will put pressure on the BoE to announce a substantial interest rate hike at its next meeting in early November, if it continues to rule out an emergency hike, in order to support the beleaguered pound.

"Markets are now pricing a terminal rate above 6% next year, and while we can debate whether this is a reliable gauge of expectations with this level of market stress, it’s no doubt true that investors are positioning for a sizable reaction," analysts at ING said, in a note.

Appearances from Bank of England officials David Ramsden, Silvana Tenreyro, and Huw Pill later on Thursday will be closely watched.

EUR/USD also fell 0.7% to 0.9667, as the U.S. dollar regained its footing after the previous session’s losses.

The single currency is also weighed by the recent escalation of the Eurozone's energy crisis, with Sweden's coast guard announcing it has discovered a fourth gas leak on the damaged Nord Stream pipelines.

The European Union suspects sabotage was behind the leaks on the pipelines carrying gas from Russia to Europe and has promised a "robust" response to any intentional disruption of its energy infrastructure.

"The attack presents a pure geopolitical event - with investors awaiting how both the West and particularly the Russians respond," said analysts at ING.

USD/JPY rose 0.4% to 144.69, remaining near the crucial 145 level, while the risk-sensitive AUD/USD fell 0.9% to 0.6466, after a new monthly measure of Australian consumer prices on Thursday showed annual inflation eased slightly in August from July.

USD/CNY slipped slightly to 7.1983, with the yuan remaining near its weakest level since the 2008 financial crisis despite the People's Bank of China attempting to boost the currency. It said on Wednesday that stabilising the foreign exchange market is the top priority.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.