The British pound edged higher yesterday after the Bank of England (BOE) affirmed its commitment to end its emergency bond-buying program as scheduled tomorrow, even as reports signaled it could extend purchases should market conditions warrant.
The Financial Times reported that the BOE has privately indicated to bankers that it could extend bond buying beyond tomorrow’s deadline if market conditions demanded it, citing three sources briefed on the discussions.
The report was at odds with comments from BOE Governor Andrew Bailey on Tuesday, who publicly told British pension funds and other investors hit by the slump in bond prices that the central bank would end its emergency bond-buying program as planned tomorrow.
Photo: Reuters
“My message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done,” Bailey said at an event organized by the Institute of International Finance in Washington.
By 7:46am GMT, the British pound was up 0.1 percent against the US dollar at US$1.0969, snapping five days of losses. It fell 0.9 percent on Tuesday after Bailey’s comments.
“The market was very shocked by how decisive Bailey was on Tuesday,” said Michael Brown, head of market intelligence at Caxton, adding that he had expected the BOE to extend gilt purchases beyond tomorrow’s deadline.
“What the market wants is a commitment from the BOE saying they will backstop the gilt market in as much size as needed for as long as needed to ensure financial stability. Until the market gets that I think any sterling rallies are ripe to be sold into,” Brown added.
Meanwhile, official data showed Britain’s economy unexpectedly shrank by 0.3 percent in August, hit by weakness in manufacturing and maintenance work in the North Sea oil and gas fields.
Still, analysts did not expect weaker-than-forecast growth to deter the central bank from continuing to raise rates.
“Further rises in Bank Rate are warranted,” Lloyds Bank Group PLC senior economist Hann-Ju Ho said in a note, even as he expects the economy to contract in the third quarter.
Money markets are fully pricing in a full-point rate rise from the BOE at next month’s meeting, Refinitiv data showed.
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