Dollar Falls, Pound Rises

Sterlin rebounded on Tuesday. However, it was fueled primarily by hope, profit-taking, and rising British rates. This left traders concerned about the wider ramifications of the currency’s historic drop.

As the dollar fell, the pound surged 1% in Asia to $1.0805 and is now up nearly 5% from its low of $1.0317 on Monday. The kiwi gained 1%, its first rise in seven sessions. At the same time, the euro saw a 0.5% rise and the Australian dollar rose by 0.7%.

Except for an implosion in gilts that have sent short-term rates up 100 bps in two days, little has changed since the sterling’s drop was prompted by fear over Britain’s gamble of relying on unfunded tax cuts to spur growth. The rise in sterling has reversed most of Monday’s losses. However, Qi Gao, the currency analyst at Scotiabank in Singapore, believes it won’t last long. This year, it is still down 20%, owing to a higher dollar.

The dollar has risen as traders become more confident that interest rates in the United States will remain high for an extended period. As the pound plummeted on Monday, the dollar soared to record highs against the euro and other currencies.

The dollar index measures the dollar versus six other currencies. It touched a 20-year high of 114.58 on Monday and was slightly down on Tuesday at 113.511.

Currencies

Japan intervened last week to defend the battered yen for the first time in decades, which has been enough to keep the currency from falling further.

The yen recently traded at 144.43 per dollar, holding steady even as the Bank of Japan increased its unplanned bond purchases to keep yields under control.

The euro hit a two-decade low of $0.9518, driven by an oil crisis and the rising chances of war in Ukraine. Last, it was worth more than a penny higher, at $0.9651.

On Monday, the Australian and New Zealand currencies fell to 2-1/2 year lows. However, they bounced, with the AUD rising 0.6% to $0.6500.

On Monday, the Chinese yuan fell to a two-and-a-half-year low.