Home / News / World /  British pound crumbles to record low, but reason why Sunak's prediction trending

British pound crumbles to record low, but reason why Sunak's prediction trending

(FILES) In this file photo taken on July 28, 2022 contender to become the country's next Prime minister and leader of the Conservative party Britain's former Chancellor to the Exchequer Rishi Sunak arrives to take part in a Conservative Party Hustings event in Leeds. - The UK will learn on September 5, 2022 who will be its next prime minister, with foreign minister Liz Truss expected to be announced winner of a lengthy vote by Conservative Party members. The result will be announced at 12.30 pm (1130 GMT), after foreign minister Truss and her rival, former finance minister Rishi Sunak, spent the summer campaigning. (Photo by Nigel Roddis / AFP) (AFP)Premium
(FILES) In this file photo taken on July 28, 2022 contender to become the country's next Prime minister and leader of the Conservative party Britain's former Chancellor to the Exchequer Rishi Sunak arrives to take part in a Conservative Party Hustings event in Leeds. - The UK will learn on September 5, 2022 who will be its next prime minister, with foreign minister Liz Truss expected to be announced winner of a lengthy vote by Conservative Party members. The result will be announced at 12.30 pm (1130 GMT), after foreign minister Truss and her rival, former finance minister Rishi Sunak, spent the summer campaigning. (Photo by Nigel Roddis / AFP) (AFP)

  • While the UK markets tumbled, Rishi Sunak former chancellor who lost to Liz Truss, to become leader of the ruling Conservative party earlier this month, started trending on social media

UK markets on Monday were in focus as the pound plunged to all-time low and bond yields surged to the highest in more than a decade, sparking talks of emergency action by the Bank of England. The currency slump follows the government’s pledged further tax cuts.

While the UK markets tumbled, Rishi Sunak former chancellor who lost to Liz Truss, to become leader of the ruling Conservative party earlier this month, started trending on social media.

In August, Sunak had warned that it would be “complacent and irresponsible" to ignore the risk of markets losing confidence in the British economy, as wagers against UK government debt sent short-term borrowing costs in the gilt market soaring.

“There will be a run on sterling. The gilts market will be in freefall. And the FTSE will tumble as global investors take fright and sell off every form of British asset. It might take only a few days, or the government might stagger through until the end of September, but before long Liz Truss and her new Chancellor Kwasi Kwarteng will have been forced to call in the IMF to stabilise a collapsing economy," Sunak had said.

One Twitter user, lauding Sunak said, “He was ridiculed for predicting it, but it looks like Rishi Sunak was right."

"Liz Truss can't say she wasn't warned that her plan was a fairy tale. Rishi Sunak(former Chancellor) - "We have to be honest. Borrowing your way out of inflation isn't a plan - it's a fairy tale" said another user.

On Monday, an index of global stocks traded at the lowest since 2020, while US futures dropped on fears that Federal Reserve rate hikes to combat persistently elevated inflation will hurt the economy and a measure of volatility jumped, Bloomberg reported.

Sterling dropped to an all-time low to $1.0853 against the dollar before recovering on Monday, as investors waited to see if the Bank of England will intervene to calm concerns over government plans that could stretch the country's finances to their limit.

The plunge in UK gilts sent 10-year yields above 4 per cent for the first time since 2010. Traders ramped up wagers on the scale of interest-rate hikes in the short term, with money markets pricing in more than 200 basis points of increases by the central bank’s next meeting in November.

In Asian trading on Monday, the pound fell by as much as 5% against the dollar at one point to a low of $1.0327.

Currency traders are finding developed markets trickier to navigate than their emerging counterparts. The euro fell as investors weighed the prospects of Italy under the most right-wing government since World War II, though Giorgia Meloni struck a conciliatory tone after her election win.

Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes. A gauge of German business confidence deteriorated.

Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. The currency’s rally is “untenable" for risk assets including stocks, and in the past this kind of dollar strength has led to some kind of financial or economic crisis, according to Morgan Stanley strategists led by Michael Wilson.

CNN reported that while finance minister Kwasi Kwarteng said the government would cut personal income taxes and cancel plans to raise business taxes next spring, calling for a “new approach for a new era, focused on growth," investors aren’t convinced that the unconventional approach will actually help the economy, which the Bank of England warned this week was already likely in a recession. A number of them called it a huge gamble.

(With inputs from Bloomberg, Reuters)

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