The pound rises in early trade after Liz Truss was told to step down

The pound strengthened against the dollar in early Asian trade on Monday, after calls for the resignation of British Prime Minister Liz Truss mounted after a series of damaging U-turns in her government’s “mini” budget.

Sterling rose 0.9 percent to $1.127 on Monday after falling 1.4 percent on Friday as investors said the PM’s moves to sack Chancellor Kwasi Kwarteng and plans to cut corporate taxes dropping is not enough.

The pound’s rise against the dollar during early Asian trade came after growing calls from Conservative MPs and businesspeople after Truss’ resignation over the weekend, with a number of cabinet ministers trying to rally support for potential contenders for the leadership.

Truss announced on Friday that Jeremy Hunt, the former secretary of state, will become her new finance secretary. She conceded that last month’s ‘mini’ budget, which included £45bn in unfunded tax cuts, ‘went further and faster than markets expected’.

But sterling remains about 17 percent down this year and analysts have warned UK government bonds remain vulnerable after the Bank of England ended its asset purchase program on Friday, which was designed to prop up the market and the pound to support.

Goldman Sachs also lowered its forecast for UK economic growth on Sunday, warning that it now expects a more pronounced recession, indicating “weaker growth momentum, significantly tighter financial conditions and higher corporation tax from next April”.

“If Truss is pushed out, it is expected to draw a line under this fiscal debacle and a new government will be able to calm markets and the public,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore.

But he added that the end of the Bank of England’s gold purchases meant sterling would reverse its gains if Truss refused to step down.

The 30-year gilt yield ended the week higher at 4.8 percent after falling as low as 4.2 percent on Friday as the BoE bought just £1.4 billion of gilts in the latest round of its emergency intervention , which had helped stem a liquidity crisis in the country’s fixed income industry.

Purchases totaling £19bn over the past few weeks also fell well short of the £65bn cap set by the BoE for the programme.

“We have reached a very important turning point in the next 24 hours,” Mohi-uddin said. “The PM can stay and markets get volatile again, or if she is pushed out there could be a period of a few days of calm. But all the underlying negative fundamentals unfortunately remain.”

https://www.ft.com/content/7a544189-68f2-425a-9cf7-def8960c505b The pound rises in early trade after Liz Truss was told to step down

Adam Bradshaw

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