FOREX-Pound rebounds as traders turn to BoE response

By Tom Westbrook

SYDNEY, Sept 27 (Reuters) – Sterling bounced on Tuesday, but was running mostly on hope, profit taking and soaring British yields, leaving traders unnerved about the broader fallout from its record dive.

As the dollar eased, the pound GBP=D3 rose 1% in Asia to $1.0805 and is up nearly 5% from Monday’s low at $1.0327. The kiwi NZD=D3 also rose 1%, its first gain in seven sessions, the euro EUR=EBS rose 0.5% and the Aussie AUD=D3 rose 0.7%.

Little has changed fundamentally, however, since sterling’s plunge was triggered by concern at Britain’s gambit of relying on unfunded tax cuts to spur growth – apart for an implosion in gilts that has sent short-term yields up 100 bps in two days.

The Bank of England has made a fairly anodyne promise to monitor markets and hike if necessary, and attention will be on the appearance of the central bank’s chief economist, Huw Pill, at a panel event at 1100 GMT.

Sterling’s climb has pared most of Monday’s losses, but Qi Gao, currency strategist at Scotiabank in Singapore said it might be “short lived.” It is still down 20% this year against the backdrop of a stronger dollar.

“More BoE rate hikes could only briefly boost the pound but not on a sustainable basis,” said Gao.

The greenback has climbed as expectations solidify for U.S. interest rates staying higher for longer, and as sudden moves like the pound’s rattle traders. As the pound fell on Monday, the dollar surged to new highs on the euro and many more.

The U.S. dollar index =USD, which measures the greenback against a basket of six majors, hit a 20-year high of 114.58 and was off that at 113.51 on Tuesday.

“Everyone’s got this hope that the dollar is peaking and peaking and peaking, but it’s just been far too premature,” said Paul Mackel, global head of FX research at HSBC in Hong Kong.

“The Fed is firmly hawkish and global growth is weakening, and you put those forces together alongside higher elements of risk aversion – it’s all pointing to a strong dollar if not a strengthening dollar.”

Japan intervened to support the battered yen for the first time in decades last week, which has been enough to stave off steeper losses for the yen, for now.

The yen JPY=EBS last traded at 144.41 per dollar, steady even as the Bank of Japan poured more cash into unscheduled bond buying to keep a lid on yields. JP/

The euro EUR=EBS made a two-decade low of $0.9528 and is weighed down by an energy crisis and new risks of war in Ukraine escalating. It was last more than a cent above that at $0.9651.

The Aussie AUD=D3 and kiwi NZD=D3 hit 2-1/2 year lows on Monday and were due for a rebound, with the Aussie up 0.6% to $0.6500 and the kiwi up 1.2% to $0.5703. AUD/

China’s yuan CNY=CFXS also hit a 2-1/2 year low on Monday and was broadly steady at 7.1589 on Tuesday.

========================================================

Currency bid prices at 0604 GMT

Description

RIC

Last

U.S. Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

Euro/Dollar

EUR=EBS

$0.9658

$0.9609

+0.52%

+0.00%

+0.9658

+0.9584

Dollar/Yen

JPY=EBS

144.3250

144.7000

-0.23%

+0.00%

+144.7050

+144.3600

Euro/Yen

EURJPY=EBS

139.39

139.07

+0.23%

+0.00%

+139.4400

+138.7100

Dollar/Swiss

CHF=EBS

0.9889

0.9926

-0.35%

+0.00%

+0.9941

+0.9892

Sterling/Dollar

GBP=D3

1.0818

1.0690

+1.18%

+0.00%

+1.0826

+1.0651

Dollar/Canadian

CAD=D3

1.3658

1.3728

-0.50%

+0.00%

+1.3741

+1.3659

Aussie/Dollar

AUD=D3

0.6502

0.6459

+0.65%

+0.00%

+0.6504

+0.6452

NZ Dollar/Dollar

NZD=D3

0.5707

0.5635

+1.22%

+0.00%

+0.5707

+0.5635

All spots FX=

Tokyo spots AFX=

Europe spots EFX=

Volatilities FXVOL=

Tokyo Forex market info from BOJ TKYFX

World FX rateshttps://tmsnrt.rs/2RBWI5E

(Reporting by Tom Westbrook; Editing by Sam Holmes)

((tom.westbrook@tr.com; +65 6973 8284;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.