Sterling jumps vs dollar on UK U-turn; yen scrabbles off 32-year trough

British pound banknote is displayed on U.S. Dollar banknotes in this illustration. REUTERS/Dado Ruvic/Illustration/File photo

TOKYO – The dollar lost ground against sterling and other major peers on Tuesday as investor sentiment picked up following the UK’s dramatic U-turn over the tax-slashing mini budget that had roiled global markets.

The British pound extended gains following a media report that the Bank of England is set to delay quantitative tightening until bond markets calm.

The yen pulled away from a fresh 32-year trough to the dollar marked late in the overnight session, while the risk-sensitive New Zealand dollar, already lifted by hotter-than-expected consumer inflation data, extended its surge to more than 1 percent.

Sterling jumped 0.36 percent to $1.1398, approaching Monday’s high of $1.144, the strongest level since Oct. 5.

The Financial Times reported that the BoE is likely to delay the sale of billions of pounds of government bonds, in a bid to encourage greater stability in gilt markets.

That’s after Jeremy Hunt, who was appointed finance minister by Prime Minister Liz Truss on Friday, reversed swathes of the 45-billion pound “mini-budget” that sent sterling crashing to record lows.

“The story as of a few days ago was the Bank of England was ending the emergency support package for the gilt market, and then it’s back to business as usual, so to the extent that the FT story is true, it is new news for sure, and it’s clearly had a market impact,” said Ray Attrill, head of FX strategy at National Bank of Australia in Sydney.

“The gilt market is still the proverbial butterfly flapping its wings and causing tsunamis in other parts of the world.”

The euro added 0.14 percent to $0.9859, and touched $0.98655 for the first time since Oct. 6.

The U.S. dollar index – which measures the greenback against six major peers, including sterling, the euro and the yen – sagged 0.21 percent to 111.85, the lowest level since Oct. 6.

The U.S. currency weakened 0.13 percent to 148.82 yen after pushing to 149.10 late on Monday for the first time since August 1990.

New Zealand’s kiwi surged 1.1 percent to $0.56975. The UK news saw the currency extend gains from a report that showed consumer inflation continued to hover near three-decade highs in the third quarter, boosting bets for further rate hikes.

The Aussie strengthened 0.39 percent to $0.63185. It also got new life from developments in Britain, after receiving a short-lived boost in the Asian morning after minutes from the Reserve Bank’s last meeting showed the decision to slow the pace of rate hikes was “finely balanced.”

The central bank’s deputy governor Michele Bullock reinforced that by saying in a speech on Tuesday that the RBA can keep pace with tightening by global peers.