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Sterling slips after IMF and Moody's rebuke Britain over tax plans

Wednesday,   28-Sep-2022   03:20 PM (IST)

Sterling resumed its fall on Wednesday after the International Monetary Fund (IMF) and ratings agency Moody’s scolded Britain over its new spending plans. The pound was down 0.56% to $1.068 with renewed dollar strength also weighing on the currency. The euro was up 0.13% against the pound to 0.895. Sterling tumbled to an all-time low against the dollar of $1.0327 on Monday as investors dumped UK assets after finance minister Kwasi Kwarteng unveiled plans to slash taxes and ramp up borrowing. The International Monetary Fund on Tuesday released a statement saying “we do not recommend large and untargeted fiscal packages” at a time of high inflation. It suggested the UK government “reevaluate” its plans. Ratings agency Moody’s said the unfunded tax cuts were “credit negative” and were likely to weigh on growth. However, James Malcolm, head of foreign exchange strategy at UBS, said the fall in the pound on Wednesday was also about dollar strength. The dollar index hit a new 20-year high of 114.78, and was last up 0.42%, as investors sought the safety of the greenback. British government bond yields have soared in the last week, reflecting investor concerns about the UK’s fiscal credibility. The benchmark 10-year gilt rose to as much as 4.582% on Wednesday, its highest since the collapse of failed U.S. investment bank Lehman Brothers in late 2008. Typically, rising yields would equate to a stronger currency. But such is investor nervousness over the outlook for the British economy that this relationship has eroded.