Bulletin
Investor Alert

New York Markets After Hours

Sept. 26, 2022, 8:32 a.m. EDT

British pound hits record low, then pares losses, as investors react to tax-cut plan

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    British Pound (GBPUSD)
  • X
    U.K. 10 Year Gilt (TMBMKGB-10Y)
  • X
    Euro (EURUSD)

or Cancel Already have a watchlist? Log In

By Anviksha Patel

The British pound hit new lows of $1.0349 against the U.S. dollar in the early hours of Monday but has pared losses, after the U.K government revealed the largest tax cut since the 1970s last week.

The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0586% made a historic dive on Friday after U.K. Chancellor Kwasi Kwarteng unveiled a mini-fiscal budget comprising a number of tax cutting measures to be financed by £62 billion of government borrowing.

The pound dropped to $1.0850 after the announcement – the lowest level since 1985 and the third worst daily performance since Black Wednesday in 1992, Deutsche Bank analysts noted, topped only by the day the U.K. voted to leave the European Union and when global markets reacted to the emergence of the pandemic in March 2020.

Investors were further shaken through the weekend into the early hours as sterling fell 2.5% to $1.0349 – from early trading in Asian markets – but losses were pared back to $1.0728.

Kwarteng remained unmoved about the market movements, and the short term risks to inflation, Reuters reported , citing the BBC.

“As chancellor of the exchequer, I don’t comment on market movements. What I am focused on is growing the economy and making sure that Britain is an attractive place to invest,” he said.

“I’m confident that the Bank is dealing with [inflation], but also what perplexed me was the fact that you don’t deal with people’s rising cost of living by taking more of their money in tax.”

The Bank of England is expected to make a statement later on Monday, Sky News has reported.

The pound has now dropped 20% on the year.

The yield on the 10-year gilt /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y -0.93% surged another 31 basis points to 4.13%.

Author Paul Krugman has argued that the pound’s depreciation will improve the U.K’s investment position and questioned why the crash would invoke a balance sheet currency crisis.

Analysts like Avatrade’s Naeem Aslam reckon the Bank of England could step in by increasing interest rates by a full percentage point. On Thursday, it raised rates to 2.25%.

“An unexpected announcement is highly anticipated from the Bank, and traders should remain cautious about this,” he said.

Meanwhile, the U.S. dollar has been growing in strength as the Federal Reserve hiked interest rates by 75 basis points last week and said it would hike more.

Elsewhere the euro /zigman2/quotes/210561242/realtime/sampled EURUSD 0.0000% is stable at $0.9685.

/zigman2/quotes/210561263/realtime/sampled
US : Tullett Prebon
1.1958
+0.0007 +0.0586%
Volume: 0.0000
Nov. 29, 2022 5:26p
loading...
/zigman2/quotes/211347177/realtime
add Add to watchlist BX:TMBMKGB-10Y
BX : Tullett Prebon
3.10
-0.03 -0.93%
Volume: 0.00
Nov. 29, 2022 4:42p
loading...
/zigman2/quotes/210561242/realtime/sampled
US : Tullett Prebon
1.0331
0.0000 0.0000%
Volume: 0.0000
Nov. 29, 2022 5:25p
loading...

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

World News from MarketWatch

Link to MarketWatch's Slice.