Pound rallies as Hunt tears up economic plan
Tuesday 18 October, 2022
Daily Currency UpdateThe pound has pushed higher over the past 24 hours as new Chancellor of the Exchequer, Jeremy Hunt, condemned Liz Truss's economic plan to history and set the UK on a path to balance the books fiscally and hopefully restore its reputation in international markets.
"Trussonomics" as it came to be known has been all but cancelled by the new Chancellor as he gave a recorded speech in Westminster outlining his economic plans at 11am yesterday, followed by a debate in parliament later that afternoon. In the 11am speech he warned he had been forced to make "decisions of eye-watering" difficulty as he confirmed that the basic rate of income tax would remain at 20% indefinitely and the proposed reduction in corporation tax had also been abandoned.
He also advised that the government’s plan to cap the cost of energy bills for households would be shortened so that it only ran through to April instead of the next two years. In April the plan will be revised so that it is more targeted towards lower income households. This measure went further than markets were expecting, and it seems they liked the more austere approach as the pound rallied throughout the day and UK government borrowing costs fell.
Liz Truss's future however seems to be creating some uncertainty and the pound has slipped this morning as a result. She declined to attend an emergency question in parliament at 3:30pm, sending in Leader of the House of Commons, Penny Mourdant, to cover her instead and only appeared but didn't take questions when she arrived to hear Hunt tear up Trussonomics and take questions on his new policies.
Truss only spoke in a BBC interview last night when she advised that she was not going anywhere and would lead the Tory's into the next General Election. With the economic plan that formed a main pillar of her winning the race to lead the Conservative Party and become PM abandoned, and the appalling recent polling for her and the Tories, it seems the uncertainty over her future could now create a headwind for further sterling gains. GBP/USD briefly got above 1.14 yesterday and again early this morning is now around 1.1350 and GBP/EUR is at around 1.1520.
Key MoversIt was a fairly quiet start to the week on the international front with yesterday’s US Empire State Manufacturing Index the only notable data release from the US or Europe. The index fell to -9.1 from last month’s -1.5. The accompanying report stated that it did not expect business conditions to improve over the next six months highlighting concerns that the US is heading towards a recession, as the needed interest rate hikes from the Federal Reserve, to fight inflation not seen for 40 years, are starting to impact the economy.
Chinese growth data which was scheduled to be released overnight has been delayed without any reason being given. The Chinese Communist Party National Congress is happening this week and given the reading is predicted to show poor growth may mean that the hierarchy of the Communist Party, including leader Xi Jinping, would rather its released once the main business of the conference is finished. Xi Jinping is expected to be appointed as leader of the country for a third term at the gathering. From the Eurozone the only data of note is this morning’s German ZEW Economic Sentiment survey which is expected to fall again. EUR/USD is at 0.9850 recovering some of its recent lost ground with most stock markets also higher this morning.
- GBP/USD: 1.1240 - 1.1420 ▲
- GBP/EUR: 1.1450 - 1.1605 ▼
- GBP/AUD: 1.7910 - 1.8100 ▼
- EUR/USD: 0.9800 - 0.9930 ▲