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The British pound is lower against the Australian dollar on Thursday.

Sterling weakened significantly against the Aussie as FX traders reacted to new policies from the Bank of England that give the UK government direct access to freshly minted cash, raising the chance of greatly increased currency debasement.

The Australian dollar gained again on Thursday. It has been benefitting all week from improved risk sentiment and a gradual return to a normal economy in China, Australia’s biggest customer.

GBP/AUD was down by 52 pips (-0.15%) to 2.0046 as of 4.30pm GMT.

The currency pair had been moving mostly sideways between 0.99 and 0.995 when it rolled over to come close to 1.97 in late trading.

British pound drops after BOE allow monetary financing

The pound slid sharply on Thursday against the Aussie dollar, forced lower by a stronger Aussie that gained alongside risk sentiment.

On Thursday the Bank of England introduced new emergency plans to allow the British government to directly tap it for money when borrowing is needed, bypassing the usual channel of going via bond markets.

Typically, if any government wants to borrow money, it will do so in a debt auction where if offers new government bonds in return for money from banks. These banks then sell these government bonds, which in the UK are called gilts to private investors or even other governments. The government will then pay the bondholders on a regular basis until the bond expires, which can be in less than a year or in over 30 years.

Australian dollar gains after relatively hawkish RBA

The Australian dollar benefited from the new Bank of England measures which contrast quite starkly with what were considered to be hawkish comments from the Reserve Bank of Austrlai at its regular policy meeting earlier in the week.

The justification for the new option is that bond markets went haywire during the recent sell-off, meaning it was difficult for government to raise money during that time. Instead of focusing on buying debt for long term returns, bondholders were panic selling to raise cash.