The pound sterling edged upwards today after plunging to an all-time low against the dollar on Monday in the wake of Chancellor Kwasi Kwarteng’s tax-cutting ‘mini budget’.
The pound fell almost five per cent against the dollar to $1.035, its lowest-ever point, in the wake of comments by Kwasi Kwarteng on his commitment to tax cutting.
On Sunday, Kwasi Kwarteng said, “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.
“There’s no way that a government… shouldn’t respond in a fiscally expansive way to support the economy, support our people through these two unprecedented shocks.”
Sterling ‘flurry of strength’
In morning trading, Sterling rose 1.1% to $1.079.
Simon Harvey, head of FX analysis at Monex Europe said, “This brief flurry of strength in the pound feels like it’s on shaky ground.
“We’ve seen some people trimming their long dollar positions a bit, but we’re looking to the New York open to see how those treasury yields are going to play throughout the day. All it needs is for them to pick up a bit and the risk environment becomes less supportive and then you start wondering what happens to UK investor sentiment.”
Jane Foley, head of currency strategy at Rabobank said, “The extreme cheapening of UK assets over the past couple of sessions is attracting some interest.
“That said, the causes of the sell-off in both gilts and in the pound have not been addressed and this suggests that the pound remains an extremely vulnerable currency.”
Banks pulling mortgage deals
British high street banks have begun to pull mortgage loan deals, with mortgage rates expected to rise.
Kwarteng’s £200 billion package of tax cuts included abolishing a planned rise in corporation tax on businesses to 25% from its current level of 19%.
Income tax will also be cut by 1p to 19p from next April – and the 45p rate of income tax for top earners will be abolished from April 2023.
Stamp duty on home purchases is also being slashed, with the level at which house-buyers begin to pay the tax doubled from £125,000 to £250,000.