Pound’s Rebound Limited by ‘Trussonomics’ Experiment Paves Bumpy Road For Sunak By

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By Yasin Ebrahim — The pound’s rebound since hitting an all-time low may soon run out of steam as the challenges facing new Prime Minister Rishi Sunak have deepened following outgoing PM Liz Truss’ economically damaging “Trussonomics” policies. 

Although it fell 0.2% to $1.1279 last month, it remains well above its all time low of $1.0327 last month. 

“International investors will not want to chase GBP/USD above the 1.15 level,” ING said in a note, as the challenge facing Sunak and his new time “will be harder than the one that existed earlier this summer.”

After winning the race to become leader of the governing Conservative Party, Sunak is expected by King Charles to be named U.K. Prime Minster on Tuesday.

He replaced Liz Truss, whose so-called “Trussonomics” policies — included a plan to drastically cut taxes to encourage economic growth, but was sorely lacking in detail on how the plan would be funded — spooked markets.

The markets punished the plan as U.K. borrowing cost rose to a 20 year high. The Bank of England intervened by resuming quantitative easing or bond buying temporarily.

Truss appointed a new chancellor to restore fiscal credibility and reversed the policies that drove the British pound down to an all-time low in Sept.

Sunak, who is fiscally conservative tends to tighten fiscal policies further by raising taxes or cutting government spending.

These measures would bring further stability to U.K, markets, which when combined with the recent strength in sterling “will allow the BoE to tighten monetary policy more gradually than would otherwise be the case,” Daiwa Capital Markets said in a note.

“[W]It stated that a 75bps rate hike (rather than 100bps), is possible in November. However, it maintained its view that the terminal rate would not rise above 4.75%.

BoE members have been looking for less hawkish action in recent week. BoE monetary policy committee member Catherine Mann on Sunday said that “the curve was perhaps too aggressively priced.”

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