Following the Bank of England’s announcement that it would intervene to calm the irrational bond markets in the UK, sterling plummeted more than 1% against the dollar and the euro on Wednesday.
The decrease in the pound was expected to be the largest monthly decline since October 2008, just after Lehman Brothers failed.
The Bank announced that it will delay the commencement of its planned gilt selling programme and make ad hoc purchases of bonds. It announced that starting on Wednesday, it will buy as many long-dated UK government bonds as were required to calm the market.
After hitting a session low of $1.0539, the pound was last down 1.41% to $1.0586. At 90.53 pence, the euro was up 1.25% against the pound.
Following a morning of chaos in the gilt market, the Bank made a surprise step. The BOE warned that if the dysfunction persisted, the stability of the UK’s financial system would be at jeopardy.
Following the announcement of plans to cut taxes and increase borrowing by the new Finance Minister Kwasi Kwarteng, the UK financial markets have collapsed recently.
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