Sterling swings as BoE confirms end of market support

The pound swung between gains and losses Wednesday after the Bank of England confirmed it will end its support for financial markets at the end of the week.

The news dealt a blow to investors who had been buoyed by a report that the BoE had pledged to lenders it would continue to provide cash if needed after Friday's deadline.

Asian stocks and the pound started the day under pressure after the UK central bank on Tuesday warned markets it would end to a near two-week programme of support aimed at quelling volatility sparked by the government's debt-fuelled tax-cutting mini-budget.

Later in the day, there was a spark of optimism that it would act as a backstop after the report in the Financial Times saying it had tried to reassure banks.

However, the mood changed again as the European day began after BoE officials said the Friday deadline remained.

Sterling moved in a wide range in Asia on the news, from a low of $1.0924 to a high of $1.1057.

Equities in Asia also saw big moves, with markets ending mixed. Hong Kong endured a three per cent swing between gains and losses before ending in the red, while Singapore, Wellington, Taipei and Jakarta were also down.

However, Shanghai, Sydney, Seoul, Manila, Mumbai and Bangkok edged up and Tokyo was flat.

The FTSE in London was also down, with sentiment also dampened by news that the UK economy unexpectedly shrank in August.

Stepping away as the buyer of last resort is not great for risk or sterling, said SPI Asset Management's Stephen Innes after Tuesday's BoE announcement.

At the end of the day, UK economic issues, fiscal irresponsibility, and a hawkish Fed will linger. So do not be surprised by a pickup in pound volatility and for a continued move lower as well.

Range of crises

Investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China's Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned for many people 2023 will feel like a recession.

Later, US President Joe Biden admitted there was a chance the country could suffer a slight recession.

Investors are now nervously looking ahead to Thursday's US inflation report, with observers warning that a strong reading could spark another rout.

Still, analysts said the Fed would not likely take a single positive reading as a reason to slow down its pace of rate hikes as it lasers in on bringing inflation down from four-decade highs.

I don't see any imbalances yet that would cause a pivot from the Fed, said Citigroup's Veronica Clark on Bloomberg Television.