Pound whips after mixed messages from Bank of England

The GBP It recovered losses on Wednesday morning after a report in the Financial Times said the Bank of England was privately signaling its willingness to extend its emergency bond-buying program.

The report, which cited unnamed sources, came after comments from BOE governor Andrew Bailey, who said the central bank would end the bailout program on Friday as planned.

Speaking at an event hosted by the Institute of International Finance in Washington, DC, late Tuesday, Bailey said “part of the essence, I think, of a financial stability intervention is that it’s clearly temporary.”

The Bank of England did not immediately respond to CNBC’s request for comment on the FT report outside of office hours.

The pound it fell as low as $1.0922 in morning Asian trade before jumping to $1.106 after the FT report was published. It was trading at $1.0988 at 6 a.m. London time on Wednesday.

The Association of Pensioners and Life Savings Association has asked for an extension of the BOE’s intervention, which is due to expire on 14 October.

“A key concern of pension funds after the Bank of England intervention was that the shopping period should not end too soon, for example, many believe it should extend to the next fiscal event on October 31 and possibly beyond.” PLSA said in a statement on Tuesday.

If bond buying stops, “additional measures will need to be taken to manage market volatility,” he added.

But Bailey said late Tuesday that the BOE does not intend to continue buying bonds to stabilize the market.

“We have announced that we will be out until the end of this week. We think the rebalancing needs to happen,” he said.

“And my message to the funds involved and all the companies involved in managing these funds: You have three days left. You have to do this.”

Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank, told CNBC on Wednesday that since the driver of market volatility was fiscal policy, not the Bank of England, there was only so much the central bank could do to calm the currency and the bond. markets.

“It’s fiscal policy, it’s the volatility it’s created in the market — you look at the pensions sector, you look at the mortgage market — and the Bank is logically trying to fulfill its mandate of financial stability,” Antonucci said.

“I suspect there will be a couple of weeks of volatility and uncertainty in the market. The next catalyst, basically, what could stabilize the situation or not, is the full budget with the OBR forecast with it.”

British Finance Minister Kwasi Kwarteng announced on Monday that the government’s full budget plan and accompanying forecasts from the independent Office for Budget Responsibility will be brought forward within three weeks to 31 October.

This is the same day the Bank of England had planned to start selling its stocks, as part of the pandemic-era cycle of quantitative tightening and easing of monetary stimulus.

— CNBC’s Elliott Smith and Jenny Reid contributed to this report.