The pound steadied against the dollar Tuesday after hitting an all-time low in the previous trading session.
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The pound climbed nearly 1% against the dollar Tuesday, after hitting a record low the previous day.
The Bank of England said it will not hesitate to hike interest rates but stopped short of an emergency meeting.
The new UK government’s debt-fueled tax-cutting plans have rattled markets since Friday.
The British pound rose Tuesday, recovering some ground after hitting an all-time low against the US dollar, as investors assessed the chances of an emergency intervention by the Bank of England.
The UK currency was up 0.96% at $1.0791 at last check, having slumped to a record low of $1.0350 on Monday after the country’s finance minister Kwasi Kwarteng promised to press ahead with further tax cuts.
Investors are weighing up a statement from the Bank of England on Monday on the central bank’s response to the pound’s drop, which sent ripples through UK stocks and other markets.
The BoE’s governor, Andrew Bailey, said the bank is monitoring developments in financial markets very closely and will not hesitate to hike interest rates to combat high levels of inflation. But it failed to say it would hold an emergency meeting of the bank’s Monetary Policy Committee, as many analysts had anticipated.
“The messages may appear to be a bit contradictory but should probably be interpreted as the BoE committing to act strongly against inflation but not to strengthen the pound,” SEB strategist Jussi Hiljanen said in a note.
Janet Henry, HSBC’s global chief economist, said that unlike Asian central banks that have intervened in currencies rather than raise interest rates, the UK central bank has held back from that.
“I don’t think there will be currency intervention on sterling. But I think we’ve got this battle between the central bank versus the government,” she said at a Forbes conference in Singapore on Monday.
“The onus is now on central bank to do more to tighten policy, to stabilize the situation. Whether they’re forced to do an interbank meeting — I think unless we get severe financial distress, dislocation, they won’t. They’ll wait for the next meeting and they’ll show decisive action and raise rates decisively in the next couple of meetings,” Henry said.
In a move to help restore investor confidence, the UK Treasury released plans Monday for Kwarteng to set out a medium-term first plan on November 23, which will include independent analysis from the Office for Budget Responsibility.
Kwarteng also plans to meet top bankers on Tuesday, the Guardian reported.
Other UK assets also steadied in early-morning trading Tuesday.
Yields on 10-year gilts slipped 18 basis points to 4.104%, having soared to 4.282% just before the Bank of England’s statement. Meanwhile, the FTSE 100 jumped 0.68%.
Here’s what’s happening elsewhere in markets on Tuesday:
US stocks looked set to open higher. Nasdaq futures rose 1.61%, S&P 500 futures climbed 1.48%, and Dow Jones Industrial Average futures added 375 points for a 1.28% gain.The US dollar index slipped 0.51% to 113.52. The index measures the dollar’s performance against six other currencies, including the pound.Oil prices rallied as the pound gained and the dollar fell. Brent crude was up 1.47% to $84.16 a barrel, while WTI crude put on 1.68% to reach $78.00 a barrel.