TOKYO Sterling headed for its best week since the end of 2020 on Friday, amid moves by British policymakers to overstep some of the market damage caused by last week's tax-slashing, debt-swelling fiscal plan.
The UK currency rose to a new one-week high at $1.1222 early in the Asian session, making it very close to erasing all of the precipitous losses in the aftermath of the new government's so-called mini budget last Friday.
The currency pair, also known as cable, fell later in the session to be 0.17 per cent lower than Thursday at $1.1100.
The sterling was on course for a 2.26 per cent gain, despite a record low of $1.0327 on Monday.
Sean Callow, a strategist at Westpac in Sydney, said the recovery in cable is eye-catching.
It makes sense that the UK yields are set to be high for some time, discouraging short positions. There is no upside in sterling with the UK already running very large current account deficits. Overnight, the British pound surged 2.13 per cent as the Bank of England BoE conducted a second day of bond buying to stabilise markets, sending gilt yields higher.
On Friday British Prime Minister Liz Truss and finance minister Kwasi Kwarteng will meet the head of the country's independent fiscal watchdog, the Office for Budget Responsibility OBR, to discuss the budget forecast process.
In her first comments since the turmoil erupted in markets, Truss pledged to stick with the controversial plans on Thursday.
Tapas Strickland, head of market economics at National Australia Bank, said the OBR's involvement is helping to support GBP and reduces fears within the markets of the so-far uncosted fiscal package.
A hot German CPI print serves as a reminder of the inflation situation in Europe and globally and that central banks need to remain hawkish. Strickland said that the decision by the BoE on Wednesday to purchase bonds should not be read as a pivot.
The data showed German inflation at its highest in more than a quarter of a century, driven by high energy prices, with analysts warning that the energy crisis has yet to make itself fully felt.
The figure for the wider 19- country euro zone is likely to surpass economists' forecasts, according to the reading.
Markets are fully priced for another 75 basis point hike by the ECB next month, with 1 in 3 odds for a full percentage point bump.
The BoE predicts that 125 basis points of tightening will be in early November, with small odds of a 150 basis-point increase.