Pound crashes again with fears of more decline against dollar and EU in Truss’s final days | City & Business | Finance

Pound crashes again with fears of more decline against dollar and EU in Truss’s final days | City & Business | Finance

The has made another steep decline against the after weeks of market uncertainty as turmoil at the top of Government leaves markets jittery over . Sterling had rallied after Liz Truss sacked her Chancellor, Kwasi Kwarteng, and his successor, Jeremy Hunt, rowed back on many of the pledged in their mini-budget.

The fiscal event, on September 23, caused upset in the currency and gilt markets, with the now-outgoing Prime Minister admitting they had gone “too far, too fast” with their economic plans.

The pound dropped to a low of $1.07 against the dollar following the event last month, but had since recovered partially to $1.14 on Tuesday.

However, with Ms Truss’s resignation after just 44 days in office has thrown fresh uncertainty not only who will be leading the nation next week, but what the fiscal policy of the Government may look like in the weeks and months to come as Britain braces for a recession.

Sterling had started today at $1.12, but has since slipped to $1.11, and market analysts see a continued descent as likely.

“After personnel changes to date, the hurdle to regain that confidence keeps getting higher.”

The pound rallied by one percent on Thursday, before sliding slightly backwards as rhetoric from the US federal reserve gave the dollar a boost.

The Biden administration is now expected to increase the federal base interest rate for a fourth consecutive time in early November.

Investors are believed to see rates continuing to rise in the US for the remainder of the year, with an expected peak of around 5 percent early next year.

Lisa Cook, a member of the Federal Reserve board, said on Thursday that soaring inflation – which has placed immense pressure on global economies – would likely require “ongoing rate hikes” and “keeping [fiscal] policy restrictive for some time”.

Where the pound will go next compared to other currencies will largely depend on the Government’s new fiscal plan under Mr Hunt, who after U-turning on many of the policies of “Trussonomics” has yet to lay out his vision for the UK economy.

However, an anticipated medium-term fiscal plan, due to be announced on October 31, is likely to be delayed as the Conservative Party selects its third leader in a year.

Sterling may also be affected by the Bank of England’s (BoE) stance, which has been accused of sluggishness in response to calls to raise interest rates to stem spiralling inflation – which in the UK hit 10.1 percent in September.

The Bank has raised its base rate of interest seven consecutive times since December last year, after a record low during the pandemic.

The latest – a rise of 0.5 percent – took the rate to 2.25 percent.

However, Ben Broadbent, BoE deputy governor, this week signalled that it was not yet clear whether further rate rises were needed, as investors expected.

Tim Baker, head of macro research at Deutsche Bank in Australia, said the firm was bearish about sterling, but this was “more because of the stagflationary mix and questions about whether the BoE will be as aggressive as they need to be”.

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Author: Shirley