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Pound On The Rise Despite The Budget Debacle

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Pound On The Rise Despite The Budget Debacle

The UK pound sterling jumped more than two percent against the US dollar on Monday after finance minister Jeremy Hunt completely reverted from the tax-cutting budget policies introduced by Prime minister former finance minister Mr. Kwasi Kwarteng.

The tax-cutting policies affected the financial market directly with the pound dropping to a record low against the US dollar last week. The UK government was quick to take action making the former finance minister and appointing Mr.Hunt to take charge of matters.

Mr.Hunt while holding a televised address stated that governments can’t control markets but they can definitely try to give certainty about the sustainability of public finances. He was seen critiquing the infamous budget that was released last week by his predecessor.

This new move to rip apart the tax cuts had made a positive impact on the market quite quickly as the Pound rose up to a one percent high against the US dollar in the beginning week.

As The UK Slashes Its Budget, The Pound Rises

The head of investment at Interactive Investor Victoria Scholar was quoted as saying, “The markets are responding positively to the new chancellor’s plans to reverse almost all of the tax cuts announced by his predecessor”.

Pound On The Rise Despite The Budget Debacle

The fall in UK government bonds or Gilt yields are putting out a confident spirit in the UK financial market and the strategic decision of the new finance minister has already been lauded by many.

The Bank of England ended its emergency purchasing last Friday on UK government bonds which were triggered by unraveling markets in the wake of Kwarteng’s September budget aimed at boosting Britain’s recession-threatened economy.

Monday’s reversals also lifted London’s benchmark FTSE 100 shares index. The three main indices of Wall street also rebounded yesterday, with the S&P 500 winning 2.7%. Analysts are optimistic about the fact that successful third-quarter earnings could definitely provide a boost for the US market that was facing threats over inflation and Federal Reserve interest rate hikes.  

Neil Wilson of Market.com expressed his doubts about the U-turn that the minister took and he feels that while this sort of decision would benefit the finance market it might negatively impact rebuilding investor confidence.

He fears that this sort of U-turn on government decisions sends a wrong message and makes the government look weak. It is not seen as a healthy sign by investors when governments backtrack on financial decisions thus making the market vulnerable.

However, he also adds that this is a tough time for the Prime minister and her government as they have to grapple with problems of inflation, the twin deficits (budget and current account), and weak productivity in the coming months.

The strong US inflation readings have been sending a shockwave among the stock market and it led to speculations that the world’s top economy might slip into a recession. We can only hope that Mr. Jeremy Hunt is up for the task to save his government and its economy. 

The Asian equities had a mixed start this week as investors expressed a little disappointment over Chinese President Xi Jinping’s statement that he is committed to the zero-Covid strategy of lockdowns that caused an economic slowdown this year.

This could lead to less productivity in overall market activity. Beijing has not yet released the anticipated economic growth figures – which analysts are expecting to be its weakest quarterly growth figures since 2020, as the economy was hammered by Covid lockdowns and the real-estate crisis.

Meanwhile, the Japanese Yen was also closing in on a three-decade low against the US dollar owing to the US rate hike expectations and the refusal of the Bank of Japan to tighten monetary policies as they wanted to support the economy.  

Content writer with good vocabulary and experience in writing news articles, and product reviews for healthcare supplements. Decent and qualitative articles are published in various well-known portals.

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