Pound pushes higher as Trussonomics set to be abandoned
Daily Currency UpdateThe pound has opened higher this morning as markets await new Chancellor of the Exchequer, Jeremy Hunt, to rip up most of Liz Truss's economic plan with him scheduled to make a statement at 11am and then speak in the House of Commons this afternoon. It appears that the package of tax cuts announced by Hunt’s predecessor, Kwasi Kwarteng, which came to be known as "Trussonomics" is set to be abandoned by his replacement, Hunt, who's appointment on Friday seems to have been welcomed by the markets.
Jeremy Hunt is an experienced MP serving the constituency of South West Surrey since 2005. He has held cabinet positions before including a six year stint as Health Secretary from 2012 – 2018. It appears that Truss has bowed to the markets and thrown in the towel regarding her economic package which when announced saw GBP/USD hit an all-time low, and UK government borrowing costs soar undermining the UK's economic credibility.
Given the plan was one of the main reasons Truss won the Conservative leadership contest, its abandonment leaves the new Prime Minister hanging on by a thread with many expecting her to be ousted in the coming days/weeks.
Notably, US President Joe Biden criticised the plan to give tax breaks to the wealthy, when interviewed over the weekend, a very unusual move and again highlighting Truss's fragile position. GBP/USD is up to around 1.1260 with GBP/EUR around 1.1550 with government borrowing costs also falling dramatically as market calm is restored for the time being. Looking ahead, Wednesday sees the next print of UK inflation with CPI expected to tick up to 10% from 9.9%.
Key MoversFriday saw US Retail Sales come in flat for September when a slight rise was forecast. The core reading which strips out car sales did beat estimates as did the monthly University of Michigan Consumer Sentiment survey which moved higher for the fourth month in a row.
Stock markets are higher this morning, likely aided by the expected abandonment of Liz Truss's economic plan. As a result the safe haven US dollar has lost some ground meaning EUR/USD is a little higher at around 0.9750. It’s a relatively quiet week on the data-front, the main event being Chinese quarterly GDP due tonight. An annualised print of 3.4% is predicted, a considerable uptick from the previous reading of 0.4% which was due to widespread Covid lockdowns implemented in major cities across the country. It was notable that President Xi Jinping emphasised that the zero-Covid strategy would continue at the Communist Party Congress which took place over the weekend.
- GBP/USD: 1.1100 - 1.1400 ▲
- GBP/EUR: 1.1490 - 1.1610 ▲
- GBP/AUD: 1.7910 - 1.8120 ▲
- EUR/USD: 0.9690 - 0.9810 ▲