The pound fell one cent versus the dollar on Tuesday as the governor of the Bank of England announced his intention to end the bond market intervention.
The Bank of England has announced that it’s emergency bond-buying program would conclude as scheduled on Friday, despite rumors that it may extend support for pension funds.
On Wednesday morning, it was announced that all temporary and targeted purchases of British government bonds, or gilts, will cease.
This has been the position throughout and has been “made abundantly clear” to senior bank officials, according to the statement.
The Bank launched its 13-day emergency bond-buying scheme to prevent “dysfunction” in the pension market from extending to UK families and businesses.
The action aims to mitigate the effects of rising interest rates on government bonds, which have increased the cost of holding the bonds and caused pension funds to experience a liquidity shortage.
There were earlier rumors that the Bank of England could reverse course and prolong bond purchases beyond Friday’s 13-day limit.
The Financial Times claimed that the Bank had quietly informed pension fund employees that it may continue its bond-buying operation beyond Friday.
This occurred even though the governor, Andrew Bailey, stated pension funds had “three days to get this done” at a Tuesday evening speech in Washington.
The Bank emphasized in its Wednesday statement that it would continue to support the pension markets in other ways beyond Friday.
This would be accomplished through the Bank’s temporary yet open-ended tool to assist lenders suffering liquidity challenges who work in the problematic segment of the pensions market. On Monday, the measure was announced.
According to a source in the Financial Times, people involved in derivatives, the market segment that necessitated the Bank of England’s involvement, needed additional time to avoid the forced selling that prompted the Bank’s action on September 28.
In overnight trade, the pound plummeted below $1.10 as a result of Mr. Bailey’s statements in Washington.
The success of the pound indicates investors’ confidence in the British economy. A decline in the value of the pound signifies a decline in economic confidence.
Wednesday morning saw some increases for the pound against the dollar, but it was still valued at less than $1.10, compared to $1.117 before Mr. Bailey’s remark.
