Sterling increased 1% at the opening bell today (17 October), following the announcement that the new Chancellor of the Exchequer would be bringing forward budgetary measures in an effort to stabilize markets.
Following Kwasi Kwarteng’s dismissal on Friday (October 14), Hunt was named chancellor. He has already taken steps to stabilize the markets.
Since the previous chancellor published the government’s Mini Budget, the pound has been declining. A strong market reaction to the wave of tax cuts and emergency spending led to sterling hitting a record low versus the dollar on September 26.
Following his comments this morning (17 October), the pound rose to $1.13.
Markets have so far reacted favorably to Hunt’s news after sterling fell from $1.13 to $1.11 following Kwarteng’s resignation and then rose again.
“A week is a long time in politics,” said Victoria Scholar, head of investment at Interactive Investor, “much alone a fortnight.”
After receiving criticism over the weekend, she claimed that Hunt is now trying to “reassure the markets and the electorate that he is focused on fiscal discipline and sustainable public finances by reversing some of his predecessor’s unfunded Mini Budget announcements a fortnight ahead of schedule.”
In her opening remarks on the UK market, she said that it had reacted “positively” to the news, with the FTSE 100 trading flat and the banks, homebuilders, and utilities outperforming while UK exporters were hurt by the strengthening of the pound.
Although the UK 10-year yield opened at 4.3% this morning and the 30-year yield opened at 4.7%, respectively, according to Refinitiv data, the fall size of the reaction has not yet been determined.
Since the Bank of England terminated its emergency support program on Friday, this is the first market opening.
The removal of Kwasi Kwarteng and the appointment of Jeremy Hunt, according to the scholar, “have helped to stabilise the market to some extent, instilling some trust in the UK government borrowing market,” since UK gilt rates are trading primarily lower as bond prices rise.
