Sterling falls as the BoE’s boost fades, and the euro falls as inflation data is released

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Last Updated on September 29, 2022 by Bitfinsider

Sterling and the euro fell on Thursday, while the US dollar recovered from a recent low as the Bank of England’s intervention in bond markets faded.

Investors were also anticipating German inflation data.

On Wednesday, the British pound rose to its highest level since mid-June after the Bank of England announced an emergency bond-buying plan to shore up a gilt market that had been in freefall alongside the pound.

But, with lingering concerns about Britain’s economic management and the global growth outlook, sterling was 1% lower at $1.0776 at 0751 GMT, and the euro was 1% lower at $0.9642, as the US dollar regained its footing.

Liz Truss, Prime Minister, defended her tax-cutting budget.

“There is only so much the BoE can do to help cable because we believe FX intervention and emergency rate hikes are out of the question. And we don’t expect the strong dollar story to change in the next six to nine months “said Chris Turner, ING’s Global Head of Markets.

“Expect cable volatility to remain high… policymakers will face a difficult challenge in holding sterling together until the 3 November BoE rate meeting or the 23 November fiscal update,” he added.

Sterling fell to a record low of $1.0327 on Monday as investors slammed Britain’s plans for tax cuts funded by a massive increase in borrowing at a time when the Bank of England is struggling to keep inflation under control.

Appearances by BoE officials David Ramsden, Silvana Tenreyro, and Huw Pill later on Thursday, as well as an address by finance minister Kwasi Kwarteng to his Conservative Party on Monday, will be closely watched.

“Sterling is still in trouble,” said DBS currency strategist Philip Wee. “The BoE appears to be addressing the symptom rather than the cause.”

The euro also fell slightly after data showed that Spain’s annual inflation fell to 9% in September from 10.5% in August. Investors will be watching German inflation figures, which are due at 1200 GMT, for clues on the European Central Bank’s rate hike path.

“Unless there is a complete (inflation data) surprise, it will only have a marginal effect on euro exchange rates, as the ECB is signaling very clearly at the moment that it will respond to high inflation levels with decisive rate hikes,” said Esther Reichelt, FX analyst at Commerzbank.

In September, consumer prices in the German state of NRW rose by 1.8% month on month, the highest monthly increase since March, and by 10.1% year on year.

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