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- October 11, 2022
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The pound weakened for the fifth day in a row amid fresh signs of trouble in the UK government bond market that forced yet another intervention by the Bank of England.
The pound currently stands at $1.10 after recovering slightly to $1.14 last week, following Kwasi Kwarteng’s U-turn on the abolition of the 45 percent tax rate.
The pound extended recent declines, falling 0.3%, even as data showed Britain’s unemployment rate fell to 3.5% in the three months to August, the lowest since 1974.
However, the Office for National Statistics (ONS) revealed that UK workers have suffered an almost 3% hit to real wages owing to increasing inflation. Further negative economic updates could put further pressure on the sterling as it’s under focus after such a volatile few week of trading.
If the government fails to fully restore investor confidence quickly, the likelihood of another sharp sell-off for the pound will increase.
The real battle remains against inflation … however the sharp decline in the pound in the past month against the US dollar has done enormous damage to that battle given that we were at $1.1600 this time a month ago and are now well below that.
After the chancellor announced his budget on September 23, the pound briefly fell to $1.03, the lowest level ever recorded.
The BoE’s latest move follows Monday’s launch of a new short-term funding facility to avoid a “cliff edge” when the central bank’s £65bn emergency bond-buying programme ends this week.
British gilt yields also fell in early trade with 10-year bond yields down 8 basis points at 4.41%. The 10-year inflation-linked bond yield was down almost 20 bps at around 1.16%.