Pound Resumes Rally on Wednesday as Rishi Sunak Hits the Ground Running

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As Britain’s new Prime Minister, Rishi Sunak, convened his first cabinet meeting on Wednesday amid rumors that he could postpone the release of a plan to fix the nation’s public finances, the pound rose to six-week highs.

Sunak came into office on Tuesday, promising to correct his predecessor’s errors and restore economic stability while warning that Britain was experiencing a “deep economic crisis.”

The government’s fiscal plan, which was expected by markets to be released on October 31 but may be postponed, according to foreign minister James Cleverly, who stated on Wednesday that additional time may be required to explain the contents.

At recent exchange rates, the pound was up 1.16% against the dollar at 1.1601 and was up 0.41% against the euro at 86.500 pence.

Pound Has a Shot at Recovery: Michael Brown

Commenting on the price developments surrounding the pound, Michael Brown, the head of market intelligence at Caxton, noted: “Things are certainly starting to look a lot more constructive for the pound.” Brown further explained:

“PM Sunak coming into office appears to have restored fiscal credibility with the market, removing a large chunk of the risk premium that was previously associated with UK assets.”

After making substantial changes to her fiscal strategy, former prime minister Liz Truss resigned last week. Her actions had caused havoc on the UK gilt markets and caused the pound to plunge to a record low versus the dollar on September 26.

Although the currency has rebounded almost 13% since then, it is still down 14% against the dollar so far in 2022.

According to Caxton’s Brown, the pound should remain supported for the time being due to a general softness in the dollar as the market anticipates a more dovish Federal Reserve next week.

Chris Turner, the head of ING’s FX strategy, believes that 1.1500 is a high mark for the pound and that a sustained break above it might cause the correction to go as far as 1.1750.