Pound Declines More Than 1% Against Dollar Following BoE Decision
After the Bank of England intervened on the bond markets to prevent a new financial crisis, the British pound fell more than 1% versus the dollar on Thursday.
A day after the BoE purchased long-dated government bonds, or gilts, to avert a substantial danger to stability, the pound fell as low as $1.0763 in early morning London trades.
In order to soothe the markets, which have been troubled by worries that last week’s UK budget will cause debt to surge, the British central bank pledged on Wednesday to purchase as many gilts as necessary.
The BoE’s decision “has certainly upped the level of concern over the potential negative economic and financial market fallout from the loss of confidence in UK’s public finances”, said MUFG Analyst Lee Hardman.
The UK budget’s significant tax cuts and energy price freeze, intended to support the country’s recession-threatened economy, sent bond yields skyrocketing and the pound plummeting to a record low of $1.0350 on Monday as traders worried about how it would affect public finances.
The BoE action followed the IMF’s criticism of Britain’s most recent budget, which it claimed may aggravate inflation and increase inequality.