Sterling has fallen this morning in the wake of Liz Truss’s resignation as traders brace for another period of political turmoil in the UK.
The pound crashed 1.17 per cent against the dollar as the Conservative party gears up for second leadership election in four months, with a leader set to be appointed by next Friday.
Truss’s resignation after 45 days sparked some signs of a recovery yesterday as the pound jumped more than one per cent against the greenback.
Her brief premiership – the shortest ever of a British Prime Minister – has been marked by wild swings on currency markets sparked by the disastrous tax-cutting mini-budget three weeks ago.
Analysts said that further turmoil in the UK would continue to dampen confidence in UK assets.
“Even following Truss’ resignation the pound is not out of the woods just yet, with sterling giving up much of its gains yesterday afternoon,” said Matthew Ryan, head of market strategy at financial services firm Ebury.
“Uncertainty in British politics remains rife, which will do little to inspire confidence in UK assets. The next Prime Minister and Tory leader is expected to be chosen by next Friday.”
Ryan said political upheaval had left the markets in flux over where to price the Bank of ENgland’s next rate hike when it meets in November.
Analysts had predicting an aggressive lift to tame the fall-out of Truss’s tax cutting mini-budget. New Chancellor Jeremy Hunt’s move to ditch almost all of the tax measures have left some analysts rowing back on their previous predictions however.
“Markets have gone from fully pricing in a 125bp rate hike at the MPC meeting in November, to now barely expecting a 75bp one,” Ryan added.