As dollar eases, pound rises by 1% as traders turn to BoE response

By Tom Westbrook

SYDNEY (Reuters) - Sterling bounced on Tuesday, but was running mostly on hope, profit taking and soaring British yields, leaving traders unnerved about the broader fallout from its record dive.

As the dollar eased, the pound rose 1% in Asia to $1.0805 and is up nearly 5% from Monday's low at $1.0327. The kiwi also rose 1%, its first gain in seven sessions, the euro rose 0.5% and the Aussie rose 0.7%.

Little has changed fundamentally, however, since sterling's plunge was triggered by concern at Britain's gambit of relying on unfunded tax cuts to spur growth - apart for an implosion in gilts that has sent short-term yields up 100 bps in two days.

The Bank of England has made a fairly anodyne promise to monitor markets and hike if necessary, and attention will be on the appearance of the central bank's chief economist, Huw Pill, at a panel event at 1100 GMT.

Sterling's climb has pared most of Monday's losses, but Qi Gao, currency strategist at Scotiabank in Singapore said it might be "short lived." It is still down 20% this year against the backdrop of a stronger dollar.

"More BoE rate hikes could only briefly boost the pound but not on a sustainable basis," said Gao.

The greenback has climbed as expectations solidify for U.S. interest rates staying higher for longer, and as sudden moves like the pound's rattle traders. As the pound fell on Monday, the dollar surged to new highs on the euro and many more.

The U.S. dollar index, which measures the greenback against a basket of six majors, hit a 20-year high of 114.58 and was off that at 113.51 on Tuesday.

"Everyone's got this hope that the dollar is peaking and peaking and peaking, but it's just been far too premature," said Paul Mackel, global head of FX research at HSBC in Hong Kong.

"The Fed is firmly hawkish and global growth is weakening, and you put those forces together alongside higher elements of risk aversion - it's all pointing to a strong dollar if not a strengthening dollar."

Japan intervened to support the battered yen for the first time in decades last week, which has been enough to stave off steeper losses for the yen, for now.

The yen last traded at 144.41 per dollar, steady even as the Bank of Japan poured more cash into unscheduled bond buying to keep a lid on yields. [JP/]

The euro made a two-decade low of $0.9528 and is weighed down by an energy crisis and new risks of war in Ukraine escalating. It was last more than a cent above that at $0.9651.

The Aussie and kiwi hit 2-1/2 year lows on Monday and were due for a rebound, with the Aussie up 0.6% to $0.6500 and the kiwi up 1.2% to $0.5703. [AUD/]

China's yuan also hit a 2-1/2 year low on Monday and was broadly steady at 7.1589 on Tuesday.

========================================================

Currency bid prices at 0604 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$0.9658 $0.9609 +0.52% +0.00% +0.9658 +0.9584

 

Dollar/Yen

144.3250 144.7000 -0.23% +0.00% +144.7050 +144.3600

 

Euro/Yen

139.39 139.07 +0.23% +0.00% +139.4400 +138.7100

 

Dollar/Swiss

0.9889 0.9926 -0.35% +0.00% +0.9941 +0.9892

 

Sterling/Dollar

1.0818 1.0690 +1.18% +0.00% +1.0826 +1.0651

 

Dollar/Canadian

1.3658 1.3728 -0.50% +0.00% +1.3741 +1.3659

 

Aussie/Dollar

0.6502 0.6459 +0.65% +0.00% +0.6504 +0.6452

 

NZ

Dollar/Dollar 0.5707 0.5635 +1.22% +0.00% +0.5707 +0.5635

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Tom Westbrook; Editing by Sam Holmes)