Yahoo Finance Pound slumps as Bank of England moves to stem bond selloff
The pound weakened for the fifth day in a row amid fresh signs of trouble in the UK government bond market that forced yet another intervention by the Bank of England.
The pound currently stands at $1.10 after recovering slightly to $1.14 last week, following Kwasi Kwarteng's U-turn on the abolition of the 45 percent tax rate.
Read more: Bank of England intervenes again amid 'material risk' to UK financial stability
The chart below shows how the value of the pound has fluctuated over the last days.
The pound extended recent declines, falling 0.3%, even as data showed Britain's unemployment rate fell to 3.5% in the three months to August, the lowest since 1974.
However, the Office for National Statistics (ONS) revealed that UK workers have suffered an almost 3% hit to real wages owing to increasing inflation. Further negative economic updates could put further pressure on the sterling as it’s under focus after such a volatile few weeks of trading.
"If the government fails to fully restore investor confidence quickly, the likelihood of another sharp sell-off for the pound will increase," MUFG strategist Lee Hardman said.
"The real battle remains against inflation ... however the sharp decline in the pound in the past month against the US dollar has done enormous damage to that battle given that we were at $1.1600 this time a month ago and are now well below that," CMC chief markets strategist Michael Hewson said.
After the chancellor announced his budget on September 23, the pound briefly fell to $1.03, the lowest level ever recorded.
Read more: UK workers suffer 2.9% hit to real wages
The BoE’s latest move follows Monday’s launch of a new short-term funding facility to avoid a “cliff edge” when the central bank’s £65bn emergency bond-buying programme ends this week.
British gilt yields also fell in early trade with 10-year bond yields down 8 basis points at 4.41%. The 10-year inflation-linked bond yield was down almost 20 bps at around 1.16%.
Watch: Kwarteng brings forward debt cutting plans
