Sterling falls after BoE announces unlimited bond purchases

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Sterling falls after BoE announces unlimited bond purchases

The Bank of England announced unlimited bond purchases on Thursday to shore up Britain's financial markets battered by the government's plans to cut taxes, but the TOKYO retreated from a bounce against the dollar overnight after the Bank of England announced that it would buy bonds to shore up Britain's financial markets.

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

The pound was a 0.51 per cent lower than $1.0831 at the time of 1200 GMT, returning some of the previous session's 1.41 per cent rally. The euro weakened by 0.32 per cent to $0.97065, the biggest gain since early March, after Wednesday's 1.51 per cent surge.

The pound fell to a new record low of $1.0327 on Friday as investors gave a scathing verdict on the new government's plan for record tax cuts, which is funded by a massive increase in borrowing, at the same time as the BoE tightens monetary policy to rein in rampant inflation.

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

Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note that 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.

Concerns about the UK's fiscal plan and its economy suggest that GBP will likely stay with the USD and other major currencies in the near term. The U.S. dollar index, which measures the dollar against sterling, the euro and four other major peers, fell 0.07 per cent higher to 113.11, heading back to Wednesday's 20 year high of 114.78.

The dollar increased by 0.23 per cent 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.

The risk-sensitive Australian dollar fell 0.38 per cent to $0.64995, giving back some of Wednesday's 1.34 per cent climb.

New Zealand's currency dropped by 0.42 per cent to $0.5706, after a 1.7 per cent surge in the previous session.