Sterling rose in volatile trade on Thursday, as investors awaited the Bank of England’s impending deadline to end an emergency bond-buying programme.
A fragile yen hovered near a new 24-year low, while markets were also on edge ahead of US inflation data due later in the day for possible hints on how far the Federal Reserve will raise interest rates.
Longer-term British gilt yields (GB30YT=RR) fell on Thursday, easing back from 20-year highs reached on Wednesday before the Bank of England purchased 4.4 billion pounds ($4.9 billion) of debt in its daily reverse auctions, which are set to end on Friday.
As market participants prepare for the BoE’s exit from the market, we can expect potential market take-up to increase. While the government shows no signs of backing down from its unfunded tax cuts, we can expect the market to focus on the risks of prolonged Gilt market volatility and potential contagion risks “Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets, concurred.
Elsewhere, the yen was under pressure against the US dollar.
The USDJPY is down 0.1% at 146.8. This is just a hair’s breadth away from the August 1998 low of 146.98 per dollar, and well above last month’s low of 145.90 per dollar, which prompted Japanese authorities to intervene to buy the yen.
FOCUS ON US INFLATION
The US dollar index DXY, which measures the greenback against a basket of peers such as sterling and the yen, fell 0.17% to 113.01, but remained close to a 20-year high reached two weeks ago.
ING analysts predicted that the dollar would continue to consolidate as the release of the September minutes revealed a still very hawkish Fed as “the cost of doing business.”