Sterling slips back with euro on persistent UK fiscal angst despite BoE bond-buying

TOKYO, Sept 29 (Reuters) – Sterling retreated again on Thursday from a sharp bounce against the dollar overnight, after the Bank of England announced unlimited bond purchases to shore up Britain’s financial markets battered by the government’s radical plans to cut taxes.

The UK currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. It committed to buying as many long-dated gilts as needed until Oct. 14.

Sterling was 0.51% lower at USD 1.0831 as of 1200 GMT, returning some of the previous session’s 1.41% rally. The euro weakened 0.32% to USD 0.97065, following Wednesday’s 1.51% surge, the biggest since early March.

Sterling had plummeted to a record low of USD 1.0327 on Friday as investors delivered a scathing verdict on the new government’s plan for record tax cuts funded by a massive increase in borrowing, at the same time as the BoE is aggressively tightening monetary policy to rein in rampant inflation.

Europe’s shared currency had plunged to a new two-decade low of USD 0.9528.

“The BoE’s bond purchases may temper the UK government’s borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Concerns about the UK’s fiscal plan and its broader economy suggest GBP will likely stay offered against the USD and other major currencies in the near term.”

The US dollar index, which measures the greenback against sterling, the euro and four other major peers, edged 0.07% higher to 113.11, heading back in the direction of Wednesday’s 20-year high of 114.78.

The dollar added 0.23% to 144.43 yen. The currency pair has kept its head below the 145 line since Japanese officials intervened a week ago, following a surge to a 24-year high of 145.90 that day.

Elsewhere, the risk-sensitive Australian dollar sank 0.38% to USD 0.64995, giving back some of Wednesday’s 1.34% climb.

New Zealand’s currency dropped 0.42% to USD 0.5706, following a 1.7% surge in the previous session.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)