- After hitting a record low on Monday, the pound gained almost 1% Tuesday against the dollar.
- Although the Bank of England stated that it would not hesitate to raise interest rates, it did not call an emergency meeting.
- Markets have been rattled by the UK’s new tax-cutting plans, which are fueled by debt, since Friday.
The British poundTuesday’s rise was a recovery from a record low against the US Dollar. This came as investors evaluated the possibility of an emergency intervention by Bank of England.
The UK currency was up 0.96% at $1.0791 at last check, having slumped to a Record low of $1.0350Monday, following the appointment of the country’s finance Minister Kwasi Kwarteng has promised to push ahead with tax cuts.
Investors are considering a Bank of England statement Monday regarding the Bank of England’s response on Monday to the pound’s fall, which sent ripples through UK stocks.
Andrew Bailey, BoE’s governor, stated that the bank was closely monitoring financial market developments and would not hesitate to raise interest rates to counter high levels of inflation. However, it did not say that it would call an emergency meeting for the Monetary Policy Committee of the bank as analysts expected.
Jussi Hiljanen, SEB strategist, stated in a note that while the messages might seem contradictory, they should be understood as the BoE agreeing to act strongly against inflation and not strengthen the pound.
Janet Henry, HSBC’s global chief economic economist, stated that, unlike Asian central banks, which intervene in currencies to raise interest rates, the UK central banking has resisted that.
“I don’t believe there will be currency intervention in sterling. She said that she believes we have a battle between the central banks and the government at the Forbes conference in Singapore.
“The central bank now has the responsibility to do more to stabilize the situation and tighten policy. Whether they’re forced to do an interbank meeting — I think unless we get severe financial distress, dislocation, they won’t. Henry stated that they will wait until the next meeting to take decisive action and raise rates in the next few meetings.
To restore investor confidence, the UK Treasury announced Monday that Kwarteng will set out a medium term first plan on November 23. It will include independent analysis of the Office for Budget Responsibility.
Kwarteng will also be meeting top bankers on Tuesday Guardian reported.
Other assets from the UK also held steady in early morning trading on Tuesday.
Yields 10-year giltsAfter soaring to 4.282% shortly before the Bank of England’s statement, it fell 18 basis points. The meanwhile, the FTSE 100 jumped 0.68%.
Here are the markets’ happenings on Tuesday.
