The British pound rose in Asian trade on Tuesday after hitting a record low against the dollar, recovering slightly after the Bank of England and the Treasury sought to calm troubled markets.
The British pound was up 0.9% in morning trade at $1.0776, just a day after falling early in the morning. send money mess nearly 5% to a record low of $1,035 after British prime minister Kwasi Kwarteng vowed to pursue more tax cuts.
The gains in the Asian morning came after Kwarteng tried to calm markets with a statement in coordination with the BoE, pledging to accelerate the development of a strategy to control the UK’s debt.
The Bank of England also said it would “not hesitate to change interest rates” to contain inflation, but stopped short of an emergency rate hike to support the currency.
Tuesday’s increase still leaves pound down 20.4% against the dollar in 2022, making it contested as the worst performer of this year’s G10 coins.
Analysts say global investors are focusing on the UK’s decline in credit as a result of the government’s new fiscal policy announced on Friday, which will incorporate £45bn of tax cuts with a huge new wave of loans.
“There is still no clear indication that the source of the problem – the government’s fiscal strategy – is being reversed or reconsidered,” said Allan Monks, chief economist at JPMorgan.
The monks added that unless Kwarteng offered a more concrete plan to stabilize the situation, “the BoE will be forced to confirm market rate expectations or else risk bringing in a dovish disappointment, which will lead to higher expectations.” long-term inflation expectations”.
The price of UK government debt also ended Monday lower, pushing 10-year yields to more than 4.2%, compared with about 3.5% before the tax cuts were announced. The two-year gold-plated yield, more sensitive to rate expectations, ended the session near 4.4%.
Although traders have retreated from bets that the BoE will announce a surprise rate hike, markets are pricing in a 1.5 percentage point increase from the UK central bank, to 3. ,75%, in November.
The UK’s street banks also have start pulling mortgage loans in response to rising gold-plated production, with mortgage rates expected to rise significantly amid broad valuations.
