The pound jumped more than one percent against the dollar Monday as Britain’s fourth finance minister in as many months sensationally ripped up a tax-cutting budget that had spooked markets.
Chancellor of the Exchequer Jeremy Hunt tore up fiscal policy unveiled by the new government of Prime Minister Liz Truss last month.
She is battling to stay in power after dramatically sacking Hunt’s predecessor Kwasi Kwarteng on Friday.
Truss and Kwarteng had announced tax cuts, funded by debt – causing the pound to hit a record low against the dollar and UK government bond yields to soar.
‘Government can’t control markets’
“No government can control markets but every government can give certainty about the sustainability of public finances,” Hunt said in a televised address that demolished the maligned budget.
However, the pound rallied and yields on UK government bonds, or gilts, slid on Monday’s fiscal policy U-turns.
“The markets are responding positively to the new chancellor’s plans to reverse almost all of the tax cuts announced by his predecessor,” noted Victoria Scholar, head of investment at Interactive Investor.
“Jeremy Hunt’s focus on reassuring the markets and reinstating confidence appears to have worked so far with gilt yields trading lower and sterling pushing higher.”
The Bank of England on Friday ended its emergency purchasing on UK government bonds triggered by unravelling markets in the wake of Kwarteng’s September budget aimed at boosting Britain’s recession-threatened economy.
Monday’s reversals also lifted London’s benchmark FTSE 100 shares index.
China disappointment
Elsewhere, Asian equities started the week in mixed fashion.
The latest strong US inflation reading ramped up bets that the Federal Reserve will hike borrowing costs by 75 basis points twice more before the end of the year – stoking concerns the world’s top economy will flip into a recession.
All three main indices on Wall Street finished sharply lower Friday.
There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid strategy of lockdowns that has hammered the economy this year.
Beijing has also delayed the release of anticipated economic growth figures – which analysts had expected to be some of its weakest quarterly growth figures since 2020, as the economy is hobbled by Covid-19 restrictions and a real estate crisis.
Traders are keeping tabs on looming earnings reports, with expectations that higher rates and prices will have eaten into companies’ bottom lines.
Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan’s refusal to tighten monetary policy, citing a need to support the economy.
The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month.
Key figures around 1130 GMT
London – FTSE 100: UP 0.8 percent at 6,913.75 points
Frankfurt – DAX: UP 1.1 percent at 12,572.07
Paris – CAC 40: UP 0.9 percent at 5,983.77
EURO STOXX 50: UP 0.9 percent at 3,411.21
Tokyo – Nikkei 225: DOWN 1.2 percent at 26,775.79 (close)
Hong Kong – Hang Seng Index: UP 0.2 percent at 16,612.90 (close)
Shanghai – Composite: UP 0.4 percent at 3,084.94 (close)
New York – Dow: DOWN 1.3 percent at 29,634.83 (close)
Pound/dollar: UP at $1.1303 from $1.1172 Friday
Dollar/yen: UP at 148.79 yen from 148.67 yen
Euro/dollar: UP at $0.9750 from $0.9722
Euro/pound: DOWN at 86.25 pence from 87.02 pence
Brent North Sea crude: UP 0.3 percent at $91.94 per barrel
West Texas Intermediate: FLAT at $85.62 per barrel
