: British Pound Hits Record Low After Tax Cuts Spark Concern About Economy #WorldNEWS The selloff in U. K. assets went into overdrive on Monday, sending the pound to an all-time low, slamming government

British Pound Hits Record Low After Tax Cuts Spark Concern About Economy #WorldNEWS
The selloff in U. K. assets went into overdrive on Monday, sending the pound to an all-time low, slamming government bonds and sparking talk of emergency action by the Bank of England.
The market mayhem extended the damage seen on Friday in the wake of the government’s new fiscal measures, which sent investors into a panic. The plunge in U. K. gilts sent 10-year yields above 4% for the first time since 2010. Sterling dropped to as low as . 0350, taking it closer to parity with the dollar, though it subsequently pared its loss to . 07.
The latest tumble—fueled by Chancellor Kwasi Kwarteng’s comment on Sunday that there’s “more to come” on tax cuts—prompted calls for aggressive rate hikes from the Bank of England, with some urging emergency action as soon as this week.
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It’s also led to talk of a currency crisis and is threatening to engulf Prime Minister Liz Truss’s days-old administration in turmoil as the country grapples with a cost-of-living crisis and a recession.
“The market remains very fragile and with the moves being driven by emotion it is very difficult to trade intraday,” said Antony Foster, head of G10 spot trading in EMEA at Nomura International Plc. “Parity for cable feels like a matter of time and while vols are off their highs there is no sense of relief in the price action this morning. ”
Traders have ramped up bets on Bank of England rate increases, briefly pricing as much as 175 basis points of tightening by the next policy meeting in November. They see the key rate peaking at 6. 25% by November 2023.
The swaps market is even pricing in a 25-basis point hike today, according to Alvin Tan, head of Asia currency strategy at RBC Capital Markets, citing bets implied from the FX forwards curve.
At Bloomberg Economics, economist Dan Hanson said currency’s drop “will set alarm bells ringing at the central bank. ” If it’s sustained, he sees the Bank of England raising its benchmark by 100 basis points.
A Bank of England spokesperson declined to comment on the exchange-rate moves.
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The Bank of England previously tried to prop up the pound on Black Wednesday, using rate hikes and currency purchases when sterling crashed out of the Exchange Rate Mechanism, a system linking a number of European currencies. That defense, which took place 30 years ago this month, ultimately failed.
“We think that the BOE is too psychologically scarred from the events of 1992 to try defensive currency-related rate hikes,” said Chris Turner at ING.

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