The pound has rallied on Thursday as financial markets gave a “damning” reaction to the announcement that Prime Minister Liz Truss is stepping down after just six weeks in the job.
Sterling shot up to 1.13 US dollars before the speech as markets anticipated that Ms Truss would resign, before paring back gains slightly to stand 0.4 per cent higher at 1.126 US dollars after her statement.
Yields on gilts – or UK Government bonds – have also eased slightly in response to the Prime Minister’s decision.
UK 30-year gilt yields, which fall as bond prices improve, fell back by 0.44 per cent to 3.86 per cent on Thursday.
Neil Wilson at markets.com said the pound’s “kneejerk verdict was damning”, signalling that her move has been welcomed across the City.
He cautioned that sterling would remain volatile as traders digest what this means for the UK Government.
But said: “But the initial reaction seemed very appropriate as the market has acted as judge, jury and executioner for the Truss regime.”
It comes after the pound has suffered a tumultuous past two months sparked by the market turmoil seen in the wake of former chancellor Kwasi Kwarteng’s mini-budget – at one stage sterling slumped to its lowest ever level against the US dollar.
A sell-off in gilts sparked by the market chaos also threatened to trigger a mini financial crisis in the UK at one stage, leaving some pension funds at risk of collapse and forcing the Bank of England to step in with emergency action late last month.
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