Sterling whipsaws as Truss quits as PM
Friday 21 October, 2022
Daily Currency UpdateYesterday saw embattled Prime Minister, Liz Truss, finally bow to enormous pressure from the Conservative Party and resign ending a tumultuous 45 days in office, the shortest tenure of any UK PM.
Truss's economic plan for growth which was unveiled by her then Chancellor of the Exchequer, Kwasi Kwarteng, saw the pound collapse, hitting an all-time low against the US dollar, and UK borrowing costs jump, leading to emergency intervention by the Bank of England.
Truss never recovered from the disastrous mini-budget which came to be known as "Trussonomics" and we now have the prospect of a new leader being fast tracked into office by the end of the next week.
The pound’s reaction to Truss getting the boot was to rally as it was clear that the markets saw her as a liability to the UK's economic credibility with GBP/USD reaching above 1.13 before paring its gains. The front runners for the next PM are former Chancellor of the Exchequer Rishi Sunak, Leader of the House of Commons, Penny Mourdant, former Defence Minister, Ben Wallace, and former PM, Boris Johnson who still commands a loyal following despite being forced to resign earlier this year following a series of scandals.
The pound has since slipped as political uncertainty begins to weigh on it. Some poor Retail Sales data from the UK has added extra pressure to sterling this morning with September’s reading showing a contraction of -1.4% m/m, much worse than expected and highlighting that the inflation driven spending squeeze for UK consumers is starting to bite. GBP/USD currently hovers around 1.12 with GBP/EUR at around 1.1445.
Key MoversIn the absence of any top tier data, US interest rate expectations have been the main talking point this week from the States. US two year Treasury yields, which are seen as an indicator of interest rate expectations from the markets, hit their highest level since 2007 reaching 4.6% indicating that we should expect to see further aggressive hikes from the US Federal Reserve after the 75bp rise which is priced in for its November meeting.
The prospect of high US interest rates and concerns over energy supplies in Europe this winter are continuing to weigh on stock markets which are again showing losses this morning and leading investors to the safety of the US dollar. It’s a quiet day on the data front so investors will be looking towards Monday’s batch of PMI data due from the UK, Europe and the US and Thursday’s European Central Bank interest rate decision which is predicted to see a hike of 75bp confirmed by ECB chief, Christine Lagarde. EUR/USD sits at around 0.9785.
- GBP/USD: 1.1100 - 1.1280 ▼
- GBP/EUR: 1.1365 - 1.1500 ▼
- GBP/AUD: 1.7700 - 1.7900 ▼
- EUR/USD: 0.9720 - 0.9870 ▼