Hunt calms the markets, but for how long?

By Tom Arnold

The last few weeks on the currency markets have been dominated by the new UK government’s attempts to stamp its new approach to fiscal management on the UK economy. Sadly, for Kwasi Kwarteng, the markets and the world’s financial institutions were simply not in agreement with his high-risk plans and at the end of last week he was recalled from the IMF in the US, and fired by embattled PM Liz Truss. Long term government minister Jeremy Hunt was appointed Chancellor and since then he has essentially cancelled all of the former Chancellor’s plans and in fact seems to be ushering in a new era of austerity akin to the Cameron/Osbourne years of a decade ago.

This approach has calmed the markets, with the Pound managing to push back up against both the Euro and the Dollar to pre-Kwarteng levels, having endured a roller coaster couple of weeks, including an all-time low against the Dollar.

Unfortunately for the new Chancellor, his externally calm approach cannot ignore the knife-edge the UK and indeed the rest of the world finds itself on economically. The Ukraine war has caused a massive inflation problem, as a result of increased food prices and energy costs, and this morning we have had confirmation of another rise in UK CPI inflation putting us once again into double figures at 10.1%. This will inevitably lead to further pressure on the Bank of England to increase interest rates, but as we know this will only make life harder economically for the people of the UK with already soaring borrowing costs, so we are far from the edge of those woods.

What all this means for the Pound is actually fairly straightforward. We have a period of around two weeks where we can likely expect things to remain a little calmer for Sterling, bar any surprising political events, with the Pound enjoying a level of stability we have not seen for over a month. But this two week period comes to an end when the new Chancellor delivers his full fiscal budget at the end of the month, and when the Bank of England next meet to announce any interest rate changes on the 3rd of November. Both of those events are likely to cause more volatility and if the markets don’t like what they hear, then the Pound will be in trouble. It is worth noting that the European Central Bank also meet to decide their interest rate policy a week after the BoE – the ECB is expected to significantly increase their interest rate, which could double down on any problems the Pound suffers, with a stronger Euro the likely result.

So, if you have an upcoming currency requirement and Sterling in hand, then it would likely be very prudent to consider your options during this period of stability in case it does prove to be short lived. Your currency consultant has various options to help you to secure the rate of exchange even if your requirement is some way off, so make sure to stay in close contact with them.