- GBP/USD bulls are trying to recover from huge losses.
- The dollar has hit a new 20-year high at 114.58 amid strong volatility.
GBP/USD is down over 1.5% on the day, but trading at 1.0698, it is a long way from the lows of 1.0356 made earlier in the session and rests between there and the daily high of 1.0931. The pair has reached an all-time low as a further sell off of the GBP and concerns over high interest rates have continued to pressure the global financial system.
Markets were particularly spooked when UK Chancellor of the Exchequer Kwasi Kwarteng announced the abolition of the top income tax rate and the cancellation of a planned corporate tax hike. The reaction to the proposed plan is really worrying and adds uncertainty to the economy. Additionally, the dollar’s strength is weighing on the currency space, with the dollar index, which trails the greenback against six pairs, hitting a new 20-year high of 114.58 in early trading.
The fall in the British pound is also giving rise to speculation that the Bank of England will have to hold an emergency meeting to raise rates. The Bank of England said on Monday it would not hesitate to change interest rates and was watching markets “very closely”.
“The Governor of the Bank of England, Andrew Bailey, declared that “the Monetary Policy Committee will not hesitate to modify interest rates to the extent necessary to bring inflation back to the 2% target in the medium term, according with his mandate.” “The statements by the Treasury and central banks came at the end of a day of turmoil for the British currency and debt, in which prices of 10-year government bonds are now heading towards their biggest drop in a calendar month since at least 1957.
Source: Fx Street
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