Bank of England Suspends Tightening Policy as Pound Slumps

UK government bond yields have been erratic and the pound has also fallen to its lowest level against the greenback. On Wednesday, the Bank of England said it was closely monitoring the “significant revaluation” of British assets.

The central bank intervenes in the British bond markets.

The Bank of England (BOE) revealed on Wednesday that it will begin temporary purchases of long-term bonds and suspend the quantitative tightening tactics the central bank has recently deployed. Two days ago the British pound fell to an all-time low against the U.S. dollar, and during Wednesday’s trading sessions the pound fell to the level of 1.0541 nominal U.S. dollars per unit.

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1-hour chart of GBP/USD on September 28, 2022, following the BOE’s statement on Wednesday.

UK government bond yields have soared recently and are suffering from the same volatility as US Treasuries. Yields in the U.K. have risen the most since 1957 and in a statement Wednesday, the BOE said it was monitoring the situation very closely. “If the dysfunction in this market were to continue or worsen, there would be a significant risk to the UK’s financial stability“, the BOE said on Wednesday. The UK central bank added:

“This would lead to an unwarranted tightening of funding conditions and a reduction in the flow of credit to the real economy. In line with its financial stability objective, the Bank of England stands ready to restore the functioning of the market and reduce any risk of contagion in credit conditions for UK households and businesses.”

The BOE’s actions follow a similar move by the Bank of Japan six days ago. After the Japanese yen fell to a 24-year low, the Japanese central bank decided to intervene in the currency markets. The yen rebounded following the intervention and on Wednesday the British pound also rebounded against the greenback after the BOE announced it would begin temporary purchases of long-term British government bonds.

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The pound is trading at a nominal $1.0661 per unit, down 0.61 percent in the past 24 hours. The BOE said it plans to intervene “on any scale necessary” for “restore orderly market conditions.

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