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Sterling swallows bitter pill, dollar advances on aggressive Fed speech

SINGAPORE: The pound languished close to a record low on Wednesday amid ongoing concerns over Britain’s radical tax cuts to boost growth, while the dollar rose after government bond yields rose overnight.

The British pound fell 0.4 percent to $1.0693 in early Asia, after a slight gain of 0.4 percent in the previous session, and still suffered major losses after falling to an all-time low of $1. 0327 at the beginning of the week.

Huw Pill, chief economist at the Bank of England, said last night that the central bank is likely to provide a “major policy response” to Treasury Secretary Kwasi Kwarteng’s massive tax cuts.

But he added that the central bank wants to wait until its next scheduled meeting in November before making its move, quelling market speculation of a potential rate hike between meetings.

“Any comments on the Bank of England’s policy path from here and on the UK budget plan will certainly be watched closely, but for the short term I think the pound will remain quite weak from here on,” said Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia.

“It’s basically a crisis of confidence. It’s up to the British government to resolve this… rather than the Bank of England.”

Meanwhile, the dollar was near a two-decade high against a basket of currencies, while the US dollar index gained 0.18 percent to 114.35, close to the high of 114.58 reached Monday.

Benchmark US 10-year and 30-year Treasury yields rose overnight to new milestones after Federal Reserve officials reiterated the central bank’s aggressive stance.

“The dollar’s strength has really exceeded many forecasters’ expectations for this year and is likely to remain higher for longer,” Kong said.

The euro fell 0.2 percent to $0.95735, while the Aussie fell 0.1 percent to $0.6428.

The kiwi fell to a new 2-1/2 year low at $0.56165.

In the latest flare-up of the eurozone gas crisis and an escalation of geopolitical tensions, Europe on Tuesday investigated what Germany, Denmark and Sweden said were attacks that had caused major leaks in the Baltic Sea from two Russian gas pipelines at the center of an energy shutdown.

In Asia, the Japanese yen was uncomfortably close to a 24-year low at 144.79 per dollar after the sudden rise in US Treasury yields as the dollar-yen pair tends to widen the long-term yield differential between US and Japan. track government bonds. It has been little helped by an intervention by Japan to prop up the fragile currency last week.

“What would really change the value of the yen is if the BOJ abandons or resets their yield curve control policies,” said Pablo Calderini, chief investment officer at hedge fund Graham Capital.

“As long as you maintain a 4 percent interest rate differential, it will be very difficult to see any significant appreciation in the yen.”

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