Pound hits all-time low against dollar after mini-budget rocks markets
Odds of sterling hitting parity with dollar jump, as analysts say UK bond market ‘getting smoked’ by giveaway
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Q&A: what does the pound’s slump mean for the UK?
Business live updates: sterling plunges
Graeme Wearden
Mon 26 Sep 2022 08.06 BST
The pound has hit an all-time low against the dollar after the bonanza of tax cuts and spending measures in Kwasi Kwarteng’s mini-budget threatened to undermine confidence in the UK.
The pound plunged nearly 5% at one point to $1.0327, its lowest since Britain went decimal in 1971, as belief in the UK’s economic management and assets evaporated. Even after stumbling back to $1.05, the currency was down 7% in two sessions, after the UK chancellor pledged over the weekend to pursue more tax cuts.
City economists suggested the slump in the pound could force the Bank of England into an emergency interest rate rise to support the currency.
Paul Dales, the chief UK economist at Capital Economics, said the Bank could come out with “tough talk” supported by a large and immediate interest rate hike.
“That could involve something like a 100bps or 150bps hike in interest rates (to 3.25%/3.75%), perhaps as soon as this morning,” Dales told clients.
The shadow chancellor, Rachel Reeves, told Times Radio she was “incredibly worried” by the market reaction to the mini-budget.
As Asia-Pacific markets opened on Monday, Ray Attrill, National Australia Bank’s head of currency strategy, said: “It’s a case of shoot first and ask questions later, as far as UK assets are concerned.”
Marc Chandler, chief market strategist at Bannockburn Global Forex, called the currency’s record plunge “incredible” and said there was bound to be speculation of an emergency Bank of England meeting and rate hike.
Chris Weston, the head of research at the brokerage firm Pepperstone, said the pound was “the whipping boy” of the G10 foreign exchange market, while the UK bond market was “getting smoked” thanks to Kwarteng’s £45bn debt-financed tax-cutting package.
https://www.theguardian.com/business/20 ... r-bond-tax