After hitting its lowest level last Monday, and thanks to the Bank of England’s emergency bond purchases, the British currency is heading for its strongest weekly rise since the end of 2020. ahead of a scheduled meeting between British Prime Minister Liz Truss and the country’s tax watchdog.
Ms Truss, Finance Minister Kwasi Kwarteng and the head of the Office for Budget Responsibility (OBR) are due to discuss the budget forecasting process later on Friday.
The OBR’s involvement “alleviates market fears over the so far unpriced tax package, which is helping support the pound,” said Tapas Strickland, head of market economics at National Australia Bank.
Chris Turner, head of markets at ING, said the government was not out of the woods yet.
He “still has to find a way to balance the books and avoid a very negative evaluation from the rating agencies,” said Mr. Turner.
“A Conservative Party conference this weekend suggests it is far too early for a shift in fiscal policy and, combined with a very challenging external environment, the pound should remain vulnerable,” he added.
Britain’s currency hit a new one-week high of $1.1235 against the US dollar at the start of London trading, bringing it very close to erasing all of the precipitous losses following the government’s tax cut plans. new government announced last Friday.
The pound was up 0.6% against the dollar at $1.1182 0910 GMT, after touching a record low of $1.0327 on Monday. Against the euro, it hit its highest level for the week and was up 0.67% to 87.80 pence recently.
“The cable takeover is very eye-catching,” said Sean Callow, strategist at Westpac Sydney.
“It makes some sense as UK yields are going to be high for some time, which discourages short positions. But with the UK already running very large current account deficits, we doubt there is be much more upside for sterling.”
BOE INTERVENTION
On Thursday, the pound jumped 2.13% as the Bank of England (BoE) carried out a second day of bond buying to stabilize markets, pushing gilt yields higher.
On Thursday, Ms Truss promised to stick to the controversial plans, in her first comments since the turmoil erupted in the markets.
For the BoE, traders expect a 125 basis point hike in interest rates at its next meeting in early November.
In another sign of a market slowdown caused by the squeeze in the cost of living and rising interest rates, UK house prices did not rise in monthly terms for the first time since July 2021, it said on Friday. the Nationwide Mortgage Creditor.
But UK creditors approved many more mortgages than expected in August.
Data released on Friday showed the UK economy grew unexpectedly in the second quarter, but remained below its pre-pandemic peak, contrary to an earlier estimate that it had recovered.
Another indicator, released by the Recruitment & Employment Confederation (REC), showed UK job vacancies fell to their lowest level since the COVID-19 pandemic last week, a sign of further weakness in the job market. work.