Pound bounces after new UK finance minister ditches most of 'mini-budget'

As the pound bounces back, a British minister will answer an urgent question in parliament on the sacking of former finance minister Kwasi Kwarteng.

 Woman holds British pound banknotes in this illustration taken May 30, 2022 (photo credit: REUTERS/DADO RUVIC/ILLUSTRATION/FILE PHOTO)
Woman holds British pound banknotes in this illustration taken May 30, 2022
(photo credit: REUTERS/DADO RUVIC/ILLUSTRATION/FILE PHOTO)

The pound rallied on Monday after Britain's new finance minister ditched most of the government's multi-billion pound "mini-budget", while the Japanese yen touched new 32-year lows, with investors braced for any sign of central bank intervention.

Sterling rallied by as much as 1.4% after Jeremy Hunt, who Prime Minister Liz Truss appointed on Friday, reversed large swathes of the 45-billion pound "mini-budget" that sparked unprecedented market turmoil in which the pound hit record lows and the Bank of England was forced to intervene.

Hunt, who has served as health and culture minister under previous governments, replaced Kwasi Kwarteng, whose package of unfunded tax cuts on Sept. 23 unleashed a bond market sell-off.

Hunt said the country now needed to increase taxes and cut spending to rebuild stability and confidence.

Investors are keeping a close eye on UK government bonds, which rallied in price sharply on Monday, thereby injecting a degree of confidence into the broader market.

 New Chancellor of the Exchequer Jeremy Hunt leaves 10 Downing Street in London, Britain, October 14, 2022.  (credit: REUTERS/HENRY NICHOLLS) New Chancellor of the Exchequer Jeremy Hunt leaves 10 Downing Street in London, Britain, October 14, 2022. (credit: REUTERS/HENRY NICHOLLS)

"The message is very much one of calm and getting a steady hand back on the tiller. The focus on market turmoil was interesting, being an acknowledgment that the UK and its fiscal policies do not exist in a vacuum, isolated from financial markets," Chris Beauchamp, chief market analyst at IG, said.

"This greater degree of self-awareness, as well as Hunt's reputation as being more of a 'safe pair of hands', certainly seems to have reassured everyone. For now the market seems happy to give the new chancellor time and space to put the government's house back in order."

The pound was last up 1.2% against the dollar at $1.13045 GBP=D3. It's regained almost 10% in value since hitting a record low of $1.0327 after the unveiling of the mini-budget.

Yields on the 30-year gilt GB30YT=RR were down 41 basis points at 4.37%, having veered above 5% at one point last week, forcing long-term investors such as pension funds to scramble for cash to protect their positions.

Holding Truss accountable

A British minister will on Monday answer an urgent question in parliament on the sacking of former finance minister Kwasi Kwarteng, after the Speaker of the House of Commons granted a request by the opposition Labour Party.

Labour asked Prime Minister Liz Truss to make a statement "on the replacement of the Chancellor of the Exchequer during the current economic situation," but it is up to the government to decide which minister they send to speak.

The statement is expected at 1430 GMT and will delay by around 45 minutes a fiscal announcement due from Kwarteng's replacement Jeremy Hunt.