Sterling clings to bulk of U-turn-driven gains as dollar firms
U-turn #U-turn
LONDON, Oct 14 (Reuters) – Sterling fell against a strengthening dollar on Friday, though held on to most of its gains from the previous day on reports the British government will reverse more of its controversial mini-budget.
The pound was last at $1.1271 , down 0.53% on the day after having jumped more than 2% on Thursday, as reports circulated that Prime Minister Liz Truss was weighing a U-turn on elements of the fiscal plan announced by finance minister Kwasi Kwarteng three weeks ago.
That plan triggered turmoil in financial markets, sending yields on British government bonds soaring and the pound to a record low of $1.0327.
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Truss is due to hold a press conference at 1300 GMT. The Times newspaper reported on Friday that Kwarteng would be sacked. The British government declined to comment on the report.
The dollar rebounded on Friday after sliding against most other major currencies on Thursday.
The pound’s moves were more muted against the euro, which was last up 0.11% at 86.5 pence, having shed 1.3% the previous day .
“The pound is pricing the expectation of another significant policy U-turn from the government, that they will have to give way to the pressure from the market and reverse the bulk of the tax cuts,” said Lee Hardman, senior currency analyst at MUFG.
Hardman added with the u-turn already in the price he saw little chance of much further gains for sterling from these levels, as “the bigger picture is ultimately still that the pound is vulnerable to further weakness” due to fears of the global slowdown.
Kwarteng left a gathering of global finance ministers early, and sources told Reuters he would join colleagues looking at how to balance the books for his fiscal plan.
The reports of the U-turn also drove gilt prices sharply higher. The Bank of England’s emergency bond buying programme is due to end on Friday, with bank officials repeatedly saying the programme will end as scheduled.
“If we get more announcements from the government or leaks that they will reverse more of the tax cuts, the selling pressure on gilts might ease anyway and mean less pressure for the Bank of England to come back,” said Hardman.
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Reporting by Alun John; Editing by Frank Jack Daniel, Kirsten Donovan
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