Yesterday was a very difficult day for the Pound as financial markets appear to have lost faith in both the Bank of England’s monetary policy and the new cabinet’s mini budget.
Last Thursday the new Chancellor of the Exchequer, Kwasi Kwarteng announced his mini-budget outlining plans for a raft of tax cuts. Then over the past weekend he pledged further tax cuts in order to try and reinvigorate the UK’s stalling economy and attempt to counter the increasing inflation rates not seen in decades.
His plans and comments have undermined confidence in the UK, and early on Monday morning the Pound dropped by almost 5% hitting an all-time low of $1.0327. There was also a significant drop for the Pound against the Euro, with the GBP/EUR rate dropping as low as the 1.08’s which is over a 6.5% drop in just the past month.
The drop against the Euro has left the GBP/EUR rate trading at the lowest levels since December 2020.
Will the Pound rebound from its current levels?
After such a drop financial markets and investors will wonder whether the Pound can recover from its current levels. Some financial forecasters believe the Bank of England will be forced to make an emergency interest rate hike to try support the Pound’s value.
Yesterday the BoE warned that it could hike by as much as needed and these comments appear to have given the Pound some support for now, with the selling off of the Pound halted for now.
Economic updates are likely to take a back seat whilst the pressure mounts on Kwarteng so soon into his new role. Political commentators also believe that the errors from Kwarteng and pressure on the Pound could seriously damage the Conservative Party’s chances of winning the next election.
Further political instability could potentially undermine the Pounds value as we’ve seen recently.
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