FOREX-Pound rallies ahead of new finance minister’s plans; yen wobbles

By Amanda Cooper

LONDON, Oct 17 (Reuters) – The pound rallied on Monday as Britain’s new finance minister prepared to unveil more fiscal plans aimed at soothing market volatility, while the Japanese yen was pinned near 32-year lows, with investors braced for any sign of central bank intervention.

Sterling rallied by as much as 1%, after Prime Minister LizTruss on Fridayditched a central plank of her government’s “mini-budget” that sent the pound to record lows and put the bond market into free-fall, prompting multiple interventions from the Bank of England in the last couple of weeks.

Jeremy Hunt, who Truss appointed as finance minister after sacking Kwasi Kwarteng on Friday, has promised to restore Britain’s economic credibility by fully accounting for the government’s tax and spending plans, while insisting Truss remained in charge of the country.

British lawmakers will try to oust Truss this week despite Downing Street’s warning that it could trigger a general election, the Daily Mail reported.

Investors are keeping a close eye on UK government bonds, which rallied in price sharply on Monday, thereby injecting a degree of confidence into the broader market.

“That was going to be the lightning rod. The fact that we’ve got yields drifting sharply lower this morning does suggest that at least up until now the measures that have been trialled and will be announced later have staunched some of the bleeding or the pessimism vis a vis the UK,” CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said.

The pound was last up 0.7% against the dollar at $1.12460 GBP=D3. It’s regained almost 10% in value since hitting a record low of $1.0327 after the unveiling of the mini-budget, which contained around 45 billion pounds of unfunded tax cuts, on Sept. 23.

Yields on the 30-year gilt GB30YT=RR were down nearly 30 basis points at 4.5%, having veered above 5% at one point last week, forcing long-term investors such as pension funds to scramble for cash to protect their positions.

Hunt, a former foreign and health minister, will deliver a statement on the government’s fiscal plans at 1000 GMT.

The Bank of England on Friday concluded its emergency gilt market support.

Meanwhile, the yen JPY=EBS last bought 148.67 per dollar, not far off Friday’s 32-year low of 148.86.

Japan last month intervened to buy the yen for the first time since 1998, after the Bank of Japan stuck to its policy of maintaining ultra-low interest rates, which has battered the currency this year.

Japanese authorities kept up their warnings to the market on Monday of a firm response to overly rapid yen declines, after last week’s fall and meetings of global financial leaders that acknowledged currency volatility.

“We are not making the argument that there is a clear line in the sand at 150.00 for Japanese authorities – the whole idea of a ‘line in the sand’ in the current FX market appears unrealistic – but it’s likely that allowing a move above 150.00 may well trigger an acceleration of the JPY sell-off which is exactly what Japan is trying to avoid,” ING strategist Francesco Pesole said in a daily note.

Elsewhere, the dollar was little changed on the day, trading around 113. .DXY The euro EUR=EBS hovered at $0.9728, up 0.1%, while the Swiss franc CHF=EBS gained 0.3% against the dollar to hold at 1.0025 francs, having hit parity on Friday.

Last week’s red-hot U.S. inflation print has reinforced bets of another aggressive rate hike at the next FOMC meeting, with markets pricing in a 90.9% chance of a 75 basis point rate hike, and a 9.1% chance of a 100 bp increase. FEDWATCH

The U.S. dollar index =USDeased to 112.93.

Meanwhile, the Chinese offshore yuan CNH=D3 last bought 7.2143 per dollar.

China’s state banks stepped up their intervention to defend a weakening yuan on Monday, with banking sources telling Reuters these banks sold a high volume of U.S. dollars and used a combination of swaps and spot trades.

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

(Additional reporting by Rae Wee; Editing by Muralikumar Anantharaman and Ana Nicolaci da Costa)

((Rae.Wee@thomsonreuters.com;))

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