The pound has edged higher against the dollar in the wake of PM Liz Truss’s partial reversal of her initial economic plan and the promise of a statement from her new chancellor tasked with sorting out the mess.
Sterling had fallen to a record low against the dollar at the end of September, after the short-lived then chancellor Kwasi Kwarteng unveiled the biggest programme of tax cuts for 50 years.
Mr Kwarteng, who was sacked on Friday after just 38 days in the job, paid the price for a mini-budget that called into question the government’s economic credibility.
It led not just to a collapse in the value of the pound but also prompted a surge in borrowing costs – forcing an unprecedented intervention by the Bank of England (BoE).
However, following the prime minister’s announcement on Friday that Mr Kwarteng had been sacked and that corporation tax would rise to 25% from April next year instead of being kept at 19%, there was a partial recovery for the UK currency and bond yields.
Mr Kwarteng’s replacement, former foreign and health secretary Jeremy Hunt, has since promised to win back the confidence of the financial markets by fully accounting for the government’s tax and spending plans.
Sterling gained 0.7% to hit $1.1252 on Monday in trade in Asia when it was revealed that Mr Hunt would deliver key parts of a medium-term fiscal plan later on Monday.
All eyes are now on how the UK government bond market will trade, after the BoE on Friday concluded its emergency gilt market support.
Any rises in government borrowing costs, through a gilt yield rise, would reflect continuing jitters.
“If we do see a surge in gilt yields, then that would show that markets remain very sceptical about the debt sustainability
in the UK,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“I think sterling is likely to remain very volatile this week,” she added.
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The Conservative Party is now on its fifth chancellor in the past three years – Mr Hunt, Mr Kwarteng, Nadhim Zahawi, Rishi Sunak and Sajid Javid.
Mr Hunt is the seventh Tory chancellor in 12 years.
There is now a renewed focus on whether Ms Truss can remain in the job.
A Tory MP told Sky News: “The idea that the prime minister can just scapegoat her chancellor and move on is deluded.
“This is her vision. She signed off on every detail and she defended it.”