Sterling climbs after tax plan reversal; dollar weaker against yen, euro

NEW YORK/LONDON: Sterling jumped against the dollar on Monday after Britain reversed a plan to cut the highest rate of income tax, and the dollar was also down against the yen and euro.

The pound rose against the dollar after media reports of the u-turn to its highest level since Sept. 22, the day before British Finance Minister Kwasi Kwarteng sent markets tumbling with a new “growth plan” to cut taxes and regulation, funded by vast government borrowing.Sterling was last up 1.5% at $1.1331.

“Sterling is getting a boost as the UK tries to reverse some of its tax cuts,” Amo Sahota, director at Klarity FX in San Francisco, said.

British finance minister Kwasi Kwarteng said he would publish details “shortly” on how he planned to bring down public debt as a share of economic output over the medium term.

The dollar, which is up sharply for the year, weakened also against other major currencies.

But, he said, “the big macroeconomic themes have not changed, so take this for what it is, it’s a new quarter and a opportunity for a bounce in equities and a little unwinding of the US dollar.” Elsewhere, the Japanese yen weakened past the 145 mark for the first time since Sept. 22, when authorities intervened to prop up the currency.The dollar was last down 0.3% at 144.34 yen.

Monday’s fall came as finance minister Shunichi Suzuki said Japan stood ready for “decisive” steps in the foreign exchange market if excessive yen moves persisted.

The yen has been weakening due to Japan’s policy of keeping interest rates pinned down at a time when they are rising elsewhere. After much speculation, authorities last month intervened in markets, spending a record of 2.8 trillion yen ($19.7 billion) to prop up the currency.

“The central banks are getting more active in trying to defend their currencies,” Klarity’s Sahota said.

China’s offshore yuan was up around 0.6% against the greenback, at 7.0975 per US dollar.

“I think the yuan has strengthened enough that it will give some peace to the People’s Bank of China at this time,” Sahota said.

The euro rose 0.3% to $0.97823. Data earlier showed manufacturing activity across the euro zone declined further last month.