People & Money

Pound reverses all damage done during Liz Truss premiership

The pound has strengthened to its highest level against the US dollar in three months, reversing all the damage done to the currency since Liz Truss’s ill-fated premiership.

Sterling today climbed 0.7 per cent against the greenback, hitting $1.21.

A combination of the US Federal Reserve signalling it will slow its aggressive interest rate hike cycle and a near reversal of the whole mini-budget has pushed the pound higher.

Last night, minutes from the Fed’s latest meeting revealed policy makers are likely to lift borrowing costs 50 basis points at the next federal open market committee (FOMC) meeting on 15 December.

Chair Jerome Powell and the rest of the FOMC has squeezed financial conditions 375 basis points since March, the fastest tightening campaign since the early 1980s.

Higher rates across the pond have sent the dollar on an upward spiral against nearly all the world’s major currencies. It has strengthened over eight per cent against the euro since the beginning of the year.

Also Read: Liz Truss to become Britain’s next Prime Minister after winning Tory leadership race

Investors tend to park their cash in countries that offer higher interest rates, or returns, on safe assets such as government debt. This dynamic strengthens a currency by raising demand for it.

Pound/US dollar exchange rate

The Fed has lifted rates 85 basis points more compared to the Bank of England since the two central banks began their tightening cycles, making the US a relatively more attractive investment prospect than the UK.

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