Prime Minister Liz Truss announces her resignation outside 10 Downing Street, London, United Kingdom, 20 October 2022.
Henry Nichols | Reuters
LONDON — The British pound fell 1.4% against the dollar on Friday, more than wiping out a modest rally after the resignation of Prime Minister Liz Truss.
The British pound was trading at $1.1074 at 1:20pm London time, its lowest level since October 12th.
Truss announced Thursday she would be stepping down, having failed to fulfill the mandate she was elected just 44 days ago.
The pound has been volatile all day but closed slightly higher than the previous session.
Viraj Patel said: “Today’s pound is susceptible to broad strength in the ‘King Dollar’ and what we saw yesterday, and even Rishi Snak’s leadership prospects, is not a ‘game changer’ for the GBP market. We are reaffirming our position,” a senior strategist at Vanda Research told CNBC.
“Foreign investors are likely to see this political instability as another reason to pull back from UK assets.”
Snack, who served as finance secretary under former Prime Minister Boris Johnson and fought head-to-head with Truss for leadership over the summer, is a likely candidate to replace her.
During the campaign, he warned that the Truss’ massive tax cut plan would lead to “rising inflation, higher mortgage rates and lower savings”, triggering a sell-off in the bond market. .
The pound has already fallen against the dollar and has risen significantly against other currencies this year on expectations of Fed rate hikes and stock market volatility, but the controversial ‘mini-budget’ was announced on Sept. 23. ‘ followed by a sharp decline. cut The pound hit an all-time low against the dollar on September 25th.
However, the currency gained some when the Bank of England launched emergency bond purchases on Sept. 28 and announced the withdrawal of nearly all tax cut plans on Oct. 17.
The pound “is still very weak and will likely continue to be weak,” Peter Toogood, chief investment officer at Enbark Group, told CNBC’s Squawk Box Europe on Friday. rice field.
“We have a budget deficit, a current account deficit, and are constantly relied on for the kindness of strangers, and it has actually been for decades,” he said.
Toogood added he believes the UK is already in a real recession as figures released on Friday showed a sharp slowdown in spending in September. It expanded by 0.2%, but inflation has risen above 10%, squeezing consumers’ purchasing power and putting pressure on businesses.
What direction Britain’s new leaders will take the country’s fiscal policy, whether new Chancellor Jeremy Hunt will provide a budget update, including independent economic forecasts, on October 31 as planned, and whether he will There is also currently uncertainty as to whether is still in the post. until then.
But Banda Research’s Patel said in a memo, “It seems strange to hear that the new prime minister will delay tax increases and spending cuts.
“If they choose this route, they won’t last long…the market will vote for them soon. My initial feeling is that ‘nothing will change’ policy-wise. If anything, Sunak will redouble his efforts to bring down inflation, just as he promised during the election.”
Against this complex backdrop, the Bank of England will meet on 3 November to decide whether and how much to raise rates after a 50 basis point hike in September.