The pound rose in Asian trading on Tuesday after hitting a record low against the dollar, recovering slightly after the Bank of England and UK Treasury sought to calm rattled markets.
Sterling was up 1.2 per cent at $1.0813, just a day after an early morning fall sent the currency tumbling almost 5 per cent to a record low of $1.035 after the UK chancellor Kwasi Kwarteng vowed to pursue more tax cuts.
The gains during the Asian trading day came after Kwarteng attempted to calm markets with a co-ordinated statement with the BoE, vowing to accelerate development of a strategy to bring UK debt under control.
The rise on Tuesday still left the pound down about 20 per cent against the dollar in 2022, putting it in contention for the worst performer among G10 currencies this year, running neck and neck with Japan’s yen, which is also down more than a fifth over the same period.
Analysts said global investors were focused on the dent to the UK’s credibility delivered by the government’s new fiscal policy, announced on Friday, which would combine £45bn of tax cuts with a huge wave of new borrowing.
Monks added that unless Kwarteng delivered a more concrete plan to stabilise the situation, “the BoE will be forced to validate market rate expectations or else risk delivering a dovish disappointment, which ends up raising longer-term inflation expectations”.