Here’s Why the UK May Struggle to Save the Pound in Financial Markets
The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers.
(Bloomberg) -- The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers.
The UK had $108 billion in foreign currency reserves at the end of August, according to data from the International Monetary Fund. Japan, which intervened to support its currency last week, had $1.17 trillion, while Switzerland had $886 billion at the end of July.
“Currency intervention would only be a solution for a few minutes, adding to longer-term hardship,” Jens Nodvig, founder of New York-based research firm Exante Data, wrote on Twitter on Saturday.
The pound almost 5% to an all-time low against the dollar in early trading on Monday, extending its decline after the government’s fiscal plan was unveiled last Friday. The options market now shows about 60% odds of the pound weakening to parity against the dollar this year, up from 32% on Friday.
The lack of market firepower may put more pressure on the Bank of England to hike rates to prevent an even bigger slump. This weekend, several strategists and economists called for assertive action from the central bank amid the market chaos.
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