Pound sterling rose to an almost two-week high on Tuesday, boosted by the UK government’s U-turn on controversial plans for tax cuts.
Sterling rose 0.08 per cent to $1.1333, up about 10 per cent from the record low against the dollar seen last week following chancellor Kwasi Kwarteng’s mini-Budget announcement of scrapping the highest rate of income tax, with cuts funded by increased borrowing.
Mr Kwarteng’s pledge to abolish the 45p rate of tax, paid by people who earn more than £150,000 a year, was met with a major pushback from the opposition and a rebellion among backbench Tory MPs, who threatened to vote against the plan saying it was unfair amid a cost of living crisis.
“We get it, and we have listened,” Mr Kwarteng said regarding the reversal of a plan to cut the 45 per cent tax band.
Prime minister Liz Truss admitted she had not had an “easy” week in a piece for Tuesday’s Express newspaper, but said she was sticking with the rest of a tax-cutting package she insisted was “essential to get the British economy moving”.
The pound began to see a recovery on Monday when the government finally decided to roll back some of the tax cuts, with sterling gaining more than 1 per cent on the currency market on Monday.
After Asia trading on Tuesday the pound reached its highest levels against the dollar since 22 September.
The rise of the pound is also partly due to the softening of the dollar as the index fell against other major currencies for a fourth consecutive day on Monday and continued to trade at lower levels on Tuesday morning.
The dip in the dollar was prompted by a slide in Treasury yields, coming after the benchmark touched its highest level in two decades.
The UK government’s U-turn also boosted Asian stocks, which saw a rebound with global market sentiment improving as a deeper setback for British assets was averted.
The boost was seen despite thinner trading due to holidays in China and Hong Kong. MSCI’s broadest index of Asia-Pacific shares outside Japan rose by over 2 per cent by midday.
The Australian central bank’s decision to surprise investors by lifting interest rates by a smaller-than-expected 25 basis points also helped the equities, but dragged the Australian dollar down.