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Weekly Roundup: Pound volatile amid political turmoil

Amy Richards October 24th 2022 - < 1 minute read

The pound found success early last week as newly appointed UK Chancellor Jeremy Hunt scrapped almost all of the tax cuts from the mini-budget, which had spooked markets just three weeks earlier.

However, the upside was short lived. Investors remained concerned about the political instability in the UK, while news that the Bank of England (BoE) would go ahead with gilt sales dented UK bond markets, thereby hurting Sterling.

Above-forecast inflation put further pressure on government bonds, causing the pound to head lower once again on Wednesday.

Gilt markets found some relief on Thursday following reassuring comments from the BoE’s Ben Broadbent. GBP investors were also initially cheered by Liz Truss’s resignation, although the prospect of another Tory leadership contest saw the pound shed its losses.

Sterling remained weak on Friday, with a larger-than-forecast contraction in UK retail sales hurting GBP.

So far this week, the pound has ticked higher after former PM Boris Johnson dropped out of the Tory leadership contest. Former Chancellor Rishi Sunak is poised to win. If he does, Sterling could strengthen, as Sunak is seen as a safe pair of hands.

However, three reports from the Confederation of British Industry (CBI) could hurt GBP this week. Forecasters expected all three releases to point to a downturn in the UK economy. Although the UK’s political instability could be resolved, the country faces a challenging period.

Written by
Amy Richards

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