Sterling rebounded versus the US dollar and euro, climbing off more than three-decade lows against the greenback as central banks moved to ease a scramble for dollars. The British currency had been one of several to tank as investors rushed to put their money in dollars, the world's most liquid currency and seen as a safe haven in times of crisis.
The Bank of England cut benchmark interest rates to a record low of 0.1% and ramped up its bond-buying programme on Thursday in a new attempt to shield Britain's economy from the coronavirus pandemic, helping gilts recover.
Analysts were divided as to whether the BoE announcement would boost the pound much in the medium-term, but many said it demonstrated that policymakers were willing to take extraordinary measures to support an economy that is likely to shrink sharply in the coming months.
British government bond yields also rallied on Thursday following the BoE's stimulus measures, and that did help sterling in money markets. Six central banks including the BoE announced coordinated action to enhance liquidity in US dollars on Friday by holding more frequent currency swap operations, further steadying nerves in money markets.
The pound whipsawed from a fresh low of $1.1413 versus the dollar in Asian trading hours overnight. It climbed to just shy of $1.20 on the day before losing momentum and was last up 2.3% at just above $1.17. Against the euro, sterling was up 2% and was heading for its second day of gains in a row, last trading at 91.21 pence per euro.
The British currency had previously fallen around 12% against the dollar over a little over a week to levels not seen since 1985. Against the single currency it slid to an 11-year low of 95 pence per euro on Thursday.
"It's been extraordinary. The pound is acting more like an emerging markets currency," said Kenneth Broux, FX strategist at Societe Generale. "Tuesday was panic stations and we had a big blow out in gilts. Investors have been liquidating all types of investments just to drum up cash (in dollars). "The Bank of England's action was very timely. It's not about the rate cut, more about restarting QE (quantitative easing through bond-buying)."
The pound's slide led some analysts to acknowledge making a bad call on the likely strength of sterling, including Bank of America which had entered a long position on the British currency on March 15. "At the time, we conceded that this was either brave or foolhardy. It may have turned out to be the latter," BoA analysts said in a note.
"Nonetheless, we are encouraged by the steps that the UK authorities have taken so far from a fiscal/monetary perspective. More will probably be needed but the authorities appear committed to provide further assistance as the situation evolves."
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