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LONDON, Sept 26 (Reuters) – The pound fell to an all-time low against the dollar on Monday after a statement from the Bank of England (BoE) disappointed market expectations of an emergency hike in rates to support the battered British currency.

In a tumultuous day, the pound plunged to a record low in Asian trade, then recovered ground on expectations that the BoE would intervene to calm a market on edge since the government announced its plans. budgets on Friday.

But the pound came under renewed selling pressure at the end of London trading after the BoE said it was watching markets closely following sharp swings in asset prices but refrained from making any an increase in emergency rates.

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The BoE said it “will not hesitate” to raise interest rates if necessary to meet its 2% inflation target. Read more

“At the moment, the pound has retreated after the (BoE) announcement… This is a statement that suggests that (Governor) Andrew Bailey is keeping his fingers crossed that the pound can stabilize before the next meeting of the monetary policy committee, but that seems a long way off,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

As of 4:40 p.m. GMT, the pound was down 1.4% at $1.0705. It had plunged as much as 4.85% to $1.0327 in weak Asian trading, extending a 3.61% fall from Friday when Finance Minister Kwasi Kwarteng unveiled tax cuts records and the largest increase in borrowing since 1972 to pay for them.

The pound has weakened more than 20% against the dollar this year and is set to experience its biggest monthly decline since November 2008.

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It was down 0.65% against the euro at 89.93 pence per euro, after touching 92.60 pence, its lowest against the single currency in two years.

A woman holds British pound banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/

“We had remarkable moves for a Monday afternoon,” said Chris Huddleston, CEO of FXD Capital. “We are going through a very difficult period and the currency is a source of concern”.

Money markets are fully pricing in the BoE’s one percentage point rate hike to 3.25% at its next meeting, according to data from Refinitiv. But that’s only November 3. IRPR

Paul Dales, chief UK economist at Capital Economics, said the government and the BoE had done “the bare minimum”.

“Markets may well need more reassurance and concrete action – i.e. details on fiscal rules, a change in government policy and/or an interest rate hike from the Bank when of an emergency meeting before November 3,” he said.

VOLATILITY

The pound’s three-month implied volatility jumped to 20% on Monday, its highest since just after the Brexit referendum in 2016, signaling markets expect more turbulence.

UK bond prices have been set for their biggest fall in any calendar month since at least 1957, according to a Reuters analysis of data from Refinitiv and the BoE. Read more

Economists and investors said Prime Minister Liz Truss’ government, in power for less than three weeks, was losing financial credibility by unveiling a major fiscal policy easing just a day after the BoE raised interest rates. interest in containing the surge in inflation.

A spokesperson for Truss said the government was not commenting on market movements and was sticking to the plan outlined in its so-called mini-budget. Read more

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Reports and Joice Alves; Additional reporting by Dhara Ranasinghe; Editing by Hugh Lawson and Mark Potter

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