The pound is higher as speculation mounts about a potential mini-budget reversal.
Sterling was trading above $1.13 against the dollar on Friday morning as the Chancellor drove home early from the US for urgent talks at Downing Street.
The currency hit a record low of $1.03 in September after markets reacted poorly to Kwasi Kwarteng’s mini-budget.
In it, he promised billions of dollars in tax cuts but did not explain how he would finance them.
Government borrowing costs have also fallen after rising to worrying levels in the days following the mini-budget.
- Mini-Budget U-turn on the table as Kwarteng flies home
- Bank of England moves to quiet markets in an emergency
- Pound hits record low after tax cut plans
The Bank of England has been buying government bonds to try to stabilize their price and avoid a sell-off that could put some pension funds at risk of collapse.
However, this support is set to end on Friday.
The government has already reversed its plan to abolish the top rate of income tax, but many Conservative MPs believe another plan change is imminent.
Russ Mold, investment director at AJ Bell, said financial markets are already pricing in a government reversal.
“They started [price it in] yesterday,” he told BBC Today.
“The guild yields went down… and the sterling went up to $1.13 against the dollar and €1.16 against the euro, so I think they’re starting to either expect, demand or sniff that it might there will be some reversal corporate income tax, dividend tax, other areas.
“But we’ll have to see what the chancellor says, as his official position at the moment is that he – and the prime minister – are not for change.”
Asked what would happen if there is no reversal, Mr Mold said: “You would expect the gains that we are starting to see to pull back.”
Add Comment