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Pound undoes all the damage done during Liz Truss’ premiership

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The pound has strengthened against the US dollar to its highest level in three months, reversing all the losses the currency has suffered since Liz Truss’ ill-fated premiership.

Sterling climbed 0.7 percent against the dollar today to $1.21.

A combination of the US Federal Reserve signaling it will slow its aggressive cycle of rate hikes and the near-reversal of the entire mini-budget has pushed the pound higher.

Last night, the minutes of the Fed’s last meeting showed that policymakers could raise borrowing costs by 50 basis points at the next meeting of the Federal Open Market Committee (FOMC) on Dec. 15.

Chairman Jerome Powell and the rest of the FOMC have eased financial conditions by 375 basis points since March, the sharpest move since the early 1980s.

Higher rates across the pond have propelled the dollar higher against nearly all major world currencies. It has strengthened against the euro by more than eight percent since the start of the year.

Investors tend to park their money in countries that offer higher interest rates or yields on safe assets such as government debt. This dynamic strengthens the currency by increasing demand for it.

pound/us dollar exchange rate

Source: CNBC

The Fed raised rates 85 basis points higher than the Bank of England as the two central banks began their tightening cycles, making the US a relatively more attractive investment prospect than the UK.

There are indications that inflation in the US is at its peak. The latest figures came in well below Wall Street’s estimate of 7.7 percent and core inflation had halved from the previous month.

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Slower price growth has prompted the Fed to loosen the throttle.

Analysts said Rishi Sunak has reassured investors about Britain’s financial credibility, reducing the risk of buying sterling-denominated assets.

“Investors seem to see that Rishi Sunak seems more determined than his predecessor in tackling rising borrowing costs,” said Fawad Razakzada, market analyst at City Index. city ​​am

The armistice introduced £45 billion in unfunded tax cuts on 23 September, sending UK borrowings skyrocketing. The pound fell to its lowest level against the greenback in the days following the mini budget.

The appalling market reaction to his development plans for tax cuts forced him to resign as the shortest-serving Prime Minister ever.

Chancellor Jeremy Hunt broke all ceasefire measures last week with a £55bn tax increase and the introduction of austerity.

Government bond yields rose sharply as investors sought higher yields in exchange for more government bonds.

Yields, which are inversely related to prices, were flat today.

Source: www.cityam.com

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