Pound rises after new PM Rishi Sunak enters No. 10

Financial markets reacted positively to Rishi Sunak’s entry into 10 Downing Street.

Sterling was about 0.4 cent higher, trading about 0.3 percent against the dollar at just over 1.13.

The yield on government bonds fell slightly on the day, reaching 3.72 percent, remaining below the level it was before the mini-budget was announced just over a month ago.

The FTSE 100 was largely flat. It had already traded lower before Sunak took office and was down about 0.5 percent at 6,977 points shortly after noon.

Liz Truss officially became the shortest-tenured prime minister in history after King Charles III accepted her resignation to make way for the new Mr Sunak to take power.

The King was “graciously pleased to accept” his resignation after just 49 days in office when they met on Tuesday morning, Buckingham Palace said.

In his first address to the nation as prime minister, Sunak said the UK was in a “deep economic crisis”.

The markets, which experienced devastating chaos under Mrs Truss, responded positively when power passed to Mr Sunak.

The pound inched higher while UK gilts extended gains as investors awaited further details on new Prime Minister Rishi Sunak’s economic and fiscal policy.

The pound rose 0.5 percent against the dollar to $1.1300 when Sunak was appointed prime minister, holding most of his gains since late last week when Liz Truss announced her resignation. Against the euro it rose 0.3 percent to 87.30p.

Long-term gilt yields, which were at the center of the storm that swept through the markets after the mini-budget, are almost back to where they were before the mini-budget release on September 23, reflecting a higher degree of confidence among investors. .

Investors are betting that former Foreign Minister Sunak will restore credibility after Truss’ disastrous time in office. Sunak is expected to keep Jeremy Hunt as chancellor, providing more stability as he appoints the rest of the cabinet from him.

However, UK mortgage rates remain near the highs last seen during the 2008 financial crisis, as the country welcomes its third prime minister in seven weeks.

The average two-year fixed-rate loan fell slightly to 6.54 percent this morning after hitting 6.65 percent last week for the first time since August 2008.

The average five-year fixed-rate deal also fell to 6.4 percent, but remains at its highest level since November 2008, according to Moneyfacts data.

The sharp increase in mortgage costs will be one of the key issues that Rishi Sunak will have to address when he replaces Liz Truss. The jump is beginning to affect house prices and is piling more pressure on family budgets.

“The drop in UK gilt yields suggests one thing and that is that we will probably see a budget delivered next week and all indications are that it will be delivered by Jeremy Hunt, the current Chancellor of the Exchequer,” said CMC Markets Chief Strategist. Michael Hewson. he said.

With gilt yields falling, the pound is likely to struggle for gains, “largely on the basis that the economic outlook for the UK economy remains gloomy,” he said.

Following Mr Sunak’s speech, the UK stock market was still struggling with the FTSE 100 trading near its lowest levels of the day.

This comes as the Bank of England’s chief economist has said the country’s economy could have benefited if “other institutions” had respected the UK’s institutional framework in recent weeks.

Huw Pill delivered the veiled coup to the government and also praised the cooperation between the central bank and the Office for National Statistics (ONS) in a speech in London.

It came days after the Bank’s deputy governor, Sir Jon Cunliffe, told MPs that the government had not fully briefed the Bank on its mini-budget and sweeping tax cut plans before it was revealed.

Subsequent concerns about the large loans required for the mini-budget hastened a sell-off in the bond market and a plunge in the pound to an all-time low against the dollar.

The financial turmoil led to the appointment as chancellor of Jeremy Hunt, who has outlined plans to reverse many mini-budget policy decisions.

Pill said Tuesday that the government and other institutions should take an example from the Bank’s relationship with the ONS.

“That is a model of how UK macro policy makers should respect the institutional framework when interacting with each other,” he said.

“From my point of view, we could have benefited in recent weeks if the interactions between other institutions had followed that pattern.”

The chief economist is one of nine members of the Bank’s Monetary Policy Committee that will meet next week to decide the latest decision on interest rates.