British pound choppy as Bank of England reiterates Friday bond-buying deadline

This image displays the British pound.

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That British pound on Wednesday morning amid mixed news of the end of the Bank of England’s emergency bond-buying package.

At an event organized by the Institute of International Finance in Washington, DC late Tuesday, Bank of England Governor Andrew Bailey said that “part of the essence of a financial stability intervention, I think, is that it’s clearly temporary.”

Bailey’s comments initially caused sterling to fall, but the pound rallied early Wednesday after a report in the Financial Times said the Bank of England was privately signaling its willingness to extend its emergency bond-buying programme.

The report, which cited anonymous sources, followed Bailey’s comments, which confirmed the central bank would end its bailout program on Friday as planned.

That lb fell as low as $1.0922 in Asian morning trade before rallying to $1.106 after the release of the FT report.

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The Bank of England declined to comment on the FT report, referring CNBC to Bailey’s comment on Tuesday night. The pound pared gains by mid-morning in London to trade around $1,097.

calls for renewal

The Pensions and Lifetime Savings Association called for an extension of the BOE’s intervention, which is scheduled to end Oct. 14.

“A key concern for pension funds since the Bank of England’s intervention has been that the purchase phase should not be ended too soon, for example many believe it should be extended until the next fiscal event on October 31st and possibly beyond.” so the PLSA said in a statement on Tuesday.

If bond buying is halted, “additional measures should be taken to manage market volatility,” she added.

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Bank of England pension decision sends shocks to financial markets

But Bailey said late Tuesday that the BOE does not intend to continue buying bonds to stabilize the market.

“We have announced that we will be out by the end of this week. We believe the realignment needs to happen,” he said.

“And my message to the funds involved and all the companies involved that manage these funds: You now have three days left. You must do this.”

Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank, told CNBC on Wednesday that since the driver of market volatility is fiscal policy rather than the Bank of England, there is limited action the central bank can do to calm the currency and bond markets.

“It’s fiscal policy, it’s the instability it’s created in the market – look at the bond sector, look at the mortgage market too – and the bank is understandably trying to fulfill its financial stability mandate,” Antonucci said.

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“I suspect there will be a few weeks of volatility and uncertainty in the market. The next catalyst, which may or may not stabilize the situation, is full budget with the OBR forecast next to it.”

We're still bearish on the British pound, says ANZ Bank

UK Finance Minister Kwasi Kwarteng announced on Monday that the government’s full budget plan and related forecasts from the independent Office for Budget Responsibility would be brought forward three weeks to October 31.

This is the same day that the Bank of England planned to start selling its gilt holdings as part of its quantitative tightening cycle and withdrawal of pandemic-era monetary stimulus.

— CNBC’s Jenni Reid contributed to this report.

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