SINGAPORE – After British Prime Minister Liz Truss partially changed her government’s economic plan, the pound slowly went up, while the yen was stuck near a 32-year low as markets waited for signs that Japanese authorities would step in.
The pound rose by 0.42 percent to $1.1225 after Truss said on Friday that Britain’s corporation tax would go up to 25% from April 2019 instead of staying at 19% as part of her government’s first “mini-budget.”
The news came just hours after she fired Kwasi Kwarteng from his job as finance minister and replaced him with Jeremy Hunt.
Hunt, who used to be the minister of foreign affairs and health, has promised to restore Britain’s economic credibility by explaining the government’s plans for taxes and spending. However, he has insisted that his boss, Liz Truss, is still in charge of the country.
The Daily Mail said that British lawmakers will try to get rid of Truss this week, even though Downing Street said it could lead to a general election.
After the Bank of England ended its emergency support for the gilt market on Friday, investors are now anxiously waiting to see what will happen next with UK government bonds.
“If we do see a rise in gilt yields, it would show that markets are still very sceptical about the UK’s ability to pay its debts,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).
“I think the value of the pound will stay very volatile this week.”
On the other hand, the yen was last worth 148.75 dollars, which is close to its 32-year low of 148.86 dollars, which was hit on Friday thanks to rising U.S. Treasury yields and a strong dollar.
After the yen’s drop last week and meetings of global financial leaders who talked about currency volatility, Japanese officials warned the market again on Monday that they would take a hard line if the yen fell too quickly.
Moh Siong Sim, a currency strategist at the Bank of Singapore, said of another intervention, “It’s possible, but it depends on when they decide to do it.”
Last month, Japan bought the yen for the first time since 1998. This was because the Bank of Japan kept interest rates at very low levels, which caused the yen to fall to 145.90 per dollar.
In other places, the dollar got a little weaker on Monday, which helped the euro, the Australian dollar, and the New Zealand dollar.
The euro was up 0.17 percent at $0.97395, and the antipodean currencies were up slightly after falling to multi-year lows last week.
The Australian dollar went up by 0.45% to $0.6231, while the New Zealand dollar went up by 0.35% to $0.55815.
The head of economics and strategy at Mizuho Bank, Vishnu Varathan, said, “The USD is still the most important currency, and it is likely to reassert, if not stamp, its superiority on any long-term challenges.”
The fact that U.S. inflation was so high last week has made it more likely that the next FOMC meeting will result in another aggressive rate hike. The markets give a 90.9% chance of a 75 basis point rate hike and a 9.1% chance of a 100 basis point increase.
The value of the U.S. dollar rose to 113.12.
The last time the Chinese offshore yuan bought one dollar, it was worth 7.2143.
On Monday, China’s state banks did more to stop the yuan from getting weaker. Banking sources told Reuters that these banks sold a lot of U.S. dollars and used swaps and spot trades to do this.
