Pound and euro rise after Bank of England bought bonds

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The British pound reversed course and rose against the dollar on Wednesday, after the Bank of England’s (BOE) purchase of government bonds allowed the dollar’s gains to rise. broadly faded after hitting a new 20-year high.

  • The BoE said it received bids worth 2.587 billion pounds ($2.78 billion) in its first bond buyback aimed at stabilizing the market, and had accepted just 1.025 billion pounds. The central bank had pledged to buy as many long-term government bonds, known as gilts, as needed between Wednesday and October 14.
  • As the markets tried to understand what this meant for the pound, the currency went on a rollercoaster ride during the trading session on Wednesday, rising as high as $1.09165 and falling as low as $1.05390. It finally traded up 1.51% at $1.08921.
  • The BoE intervention boosted currency trading across the board, according to Erik Nelson, macro strategist at Wells Fargo (NYSE: WFC ).
  • “You had financial stress everywhere. Yields were rising and the dollar was rising. It was feeding on itself. We needed something or someone to stop the financial stress and financial panic that was happening. The BoE stepped in there,” Nelson said. “The easing of financial stress has helped sterling and other currencies recover against the dollar.”
  • But the relief for the British pound may be temporary as the UK still has to deal with macro trends such as high inflation.
  • Investors have also been monitoring Russia’s war against Ukraine and energy uncertainty in Europe after leaks in the Nord Stream pipeline between Russia and Europe dumped gas into the Baltic Sea, according to Brad Bechtel, global head of FX at Jefferies in New York. NATO Secretary General Jens Stoltenberg attributed the leaks to acts of sabotage.
  • The dollar index hit a new 20-year high of 114.78, before settling at 112.66.
  • While the dollar initially made broad gains, the greenback pulled back sharply as the New York session progressed. The euro rose 1.52% to $0.9739 after falling as low as $0.95355.
  • The dollar fell 0.61% against the yen to 143.955 yen after hitting a high of 144.860.
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