Dollar Weakens Amid Confusion Over Bank Of England Stance By

© Reuters

By Geoffrey Smith — The dollar weakened in early trading on Wednesday in Europe amid confusion over the Bank of England’s willingness to continue supporting a UK bond market that has emerged as a key pressure point in the global financial sector.

As of 03:30 ET (07:30 GMT), the , which tracks the greenback against a basket of six currencies from advanced economies, was down 0.1% at 113.15, slightly lower as some traders bet on the Bank of England forced to extend its outright bond purchases beyond its self-imposed Friday deadline.

Bank of England Governor Andrew Bailey said on Tuesday – with unusual candor – that pension funds had three days to settle their current positions, sending the pound plummeting. However, he recouped most of his losses after the Financial Times reported that Bank officials had privately advised city bankers that he could after all.

The confusion left at $1.1021, up half a percent from Tuesday night in the US, but with the market on a knife edge as it waits for more clarity.

Data showing that the UK economy did little to help the mood, with developments in the economy, services and all sectors worse than expected during the month.

“What we are seeing in real time in the UK is a hyper-financialisation of the economy that has been going on for decades and is partly taking place in rapid advance at gunpoint; and/or a triggering a multi-decade-fast-forward market hyper-crash; or both,” said Michael Every, global macro-strategist at Rabobank in a note to clients. He warned that there was “more to start if you widen your view”.

Simon French, chief economist at Panmure Gordon, tweeted that Bailey’s comments essentially did nothing more than repeat the Bank’s press release from a day earlier. This had set in motion a shift from outright purchases of gilts to lending operations which have a more manageable impact on the money supply, and therefore on inflation.

Elsewhere, the dollar struggled to rise, rising 0.1% to $0.9712 after Banque de France Governor Francois Villeroy de Galhau appeared to cast doubt on keeping pace. the United States.

Villeroy said it was too early to say whether the ECB should raise policy rates by 50 or 75 basis points at its Oct. 27 meeting, a week before the Federal Reserve’s next meeting. Villeroy also said the bank’s refinancing rate should be at its neutral level – or “just under 2%” – before the end of the year, which would allow the ECB to reduce its balance sheet.

Also overnight, the rose stronger after the Bank of Korea raised its rate by 50 basis points to 3.0% as expected, and warned of further hikes ahead. He explicitly pointed to the weakness of the won as having contributed to inflation overshooting the target.

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