Sterling drops on Bailey remarks and shift to safe havens

Sterling was on track on Thursday for its biggest daily fall in almost two years versus euro and in six months against dollar as investors shifted to safe-haven assets and Bank of England Goverr Andrew Bailey hinted at faster policy easing.

BoE could become "a bit more activist" on rate cuts if re is furr good news on inflation, Bailey said in an interview published on Thursday.

Sterling was last down 1.05 per cent at $1.3128, on course for its biggest daily fall since April.

pound is seen as a risky currency that tends to rise along with equities.

Euro/sterling was up 1.05 per cent at 84.12 pence, in its biggest daily rise since December 2022.

" market is running long GB pound in part based upon BoE staying on hold whilst those around it continue to cut," said Neil Jones, senior foreign-exchange salesperson to financial institutions at TJM Europe.

"Bailey's comments shift this narrative sufficiently for investors to take chips off table...," he ded.

safe-haven dollar rose to a one-month peak, as tensions simmered in Middle East following Iran's ballistic missile attack on Israel.

UK 2-year gilt yields, sensitive to expectations on BoE policy, dropped 5.5 basis points (bps) to 3.96 per cent.

Interest rate futures showed financial markets see a 98 per cent chance of a 25-bp rate cut at central bank's vember meeting, up slightly from Wednesday. Markets are pricing in 41 bps of rate cuts by year-end from 36 bps on Wednesday.

Market participants will look to Friday's US jobs data, which could offer hints on health of world's biggest ecomy and shape Fed's policy path.

first budget plan from new British government, due at end of this month, is also in focus, with bond yields rising on Wednesday as investors weighed up possibility of higher debt issuance.

George Buckley, mura's chief UK and euro area ecomist, upgred forecasts for gilt issuance to 315 billion pounds ($413 billion) this year versus 277.7 billion previously expected.

"While both taxes and spending are likely to be higher across forecast horizon, we think balance will be towards a mild fiscal loosening on aver," he said.

"If so, that would, at margin, support our view of Bank of England easing more grually."