LONDON: Britain’s pound weakened against the dollar on Wednesday, ending a six-day rally, but staying well off recent lows following the government’s U-turn earlier this week on some tax cuts.
The pound was down 0.6% at $1.1404, little changed at 87.095 pence per euro.
After tumbling to a record low of $1.0327 last week in the aftermath of the government’s ‘mini-budget’ announcement, the pound has recovered some ground.
It was also boosted on Monday after the government reversed a cut to the highest rate of income tax.
British Prime Minister Liz Truss will argue on Wednesday that disruption sparked by her economic plans will be worth it in the long run, as she gives a speech at the Conservative party conference.
“Compared to the wild swings over the past week or so it’s not a significant move,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, referring to the pound’s performance.
“But I think also ahead of Liz Truss’s speech there is still quite a lot of uncertainty and division within the conservative party about the direction of economic policy.”
Traders will be listening to find out whether there is any further retreat on the tax cutting policies and whether there is any reconciliation with those opposing the policies within her own party, said Streeter.
Sterling got a small uplift after the final S&P Global UK Composite Purchasing Managers’ Index came out slightly higher than first estimated.
Despite the slightly better reading, the data brings into focus the challenges facing British businesses as they suffer the sharpest contraction in activity since early last year.
Amid recession fears and concerns around the UK’s fiscal policy, the pound is down 16.5% versus the dollar so far in 2022.
Meanwhile the dollar has been rising, as the US Federal Reserve’s hiked interest rates aggressively to control inflation.
The Bank of England is also battling to control soaring inflation, with the market expecting a bumper hike of 100 basis point hike at its next meeting in November.