- Sterling rallies as U.K.’s Osborne floats corporate-tax cut
- Yen pauses after best first half since 1995 on haven demand
The pound halted its biggest two-week drop in more than seven years, after U.K. authorities flagged measures to mitigate the impact on the economy of the vote to leave the European Union.
Sterling rose against the dollar for the first time in three days during the U.S.’s Fourth of July vacation.
U.K. Chancellor of the Exchequer George Osborne told lawmakers Monday that more money might be made available to banks for lending to companies, and in an interview with the Financial Times floated the idea of a lower corporate tax rate. Bank of England Governor Mark Carney outlines the available macroprudential tools on Tuesday.
“The prompt response by officials is reducing the risk of a severe downturn and that’s positive for some sterling-denominated assets,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London. Still, risks remain, he said, because he doubts “investors will discount the Brexit risk to such a degree as to adopt a constructive view on sterling.”
The pound rose 0.4 percent to $1.3317 at 4:40 p.m. in London, following a two-week, 7.6 percent slide. It was the worst performer in June among 31 major currencies tracked by Bloomberg.
Sterling gained 0.2 percent to 83.67 pence per euro after tumbling more than 3 percent last week.
The yen was little changed at 102.51 per dollar. The Japanese currency, in demand as a haven, climbed 16 percent in the first half, its best since 1995. It’s also the top-performing major currency after Brazil’s real in 2016.
Carney is set to make his third appearance in 12 days on Tuesday to address the threats facing the financial system. He’ll outline the macroprudential tools available to support the economy, boost business lending and encourage investment -- and may ease capital requirements for lenders.
While this and Osborne’s tax proposal may provide some support for sterling following a post-Brexit sell-off, a number of strategists, including Ned Rumpeltin at Toronto Dominion Bank, say the pound is still in sell-on-rallies mode.
“This is a slow-burn story -- one that is going to play out over months and quarters,” said Rumpeltin, the bank’s London-based European head of currency strategy. “I don’t think the market has fully adjusted to what the U.K.’s departure means for the economy, particularly as there are so many questions about what that process will look like.”