Britain’s pound crumbled to record lows in “fire sale” of UK assets, wrote Reuters in an article that collected a variety of market views.
Mark McCormick, global head of Currency Strategy at TD Bank in Toronto said: “The crux of the issue is that the macro policy mix will continue to push real yields lower in the face of a rising current account deficit. Sterling has long relied on the kindness of strangers to backstop the current account deficit, but the price action illustrates the market’s rejection of the evolving macroeconomic policy mix.”
Kit Juckes, head of Currency Strategy at Société Générale in London: “Markets have a tendency to overshoot and I wouldn’t overinterpret the fall [September 26 morning]. But there are two points. One is the loss of confidence in UK fiscal policy and that won’t help sterling. The second is that the mini-budget has allowed sterling to be the short of choice against the dollar.”
You-na Park-Heger, currency strategist, Commerzbank in Frankfurt, said: “Last week’s minutes of the Bank of England’s meeting made it quite clear that in its fight against inflation the BoE is putting some hope in fiscal policies. Measures such as the energy price cap, which will come into effect in October, could weaken inflation pressure and thus ease pressure on the BoE to fight inflation in a more determined manner.”
“However, the sterling moves recorded on Friday and especially this morning illustrate that this is not so easy. The presentation of the mini-budget was received quite badly by the markets – sterling literally collapsed. The significant tax cuts announced by the Treasury Secretary cause concerns for the currency markets because of rising government debt.”
Samy Chaar, chief economist at Lombard Odier in Geneva, said: “This doesn’t feel like a currency crisis, where the decline in a currency worsens the situation. Sterling needs to decline considering the deficits and the uncertainty around what the Bank of England will do, but at some point, it will fall to a level where the attractive return prospects it creates improves the prospects of economic and financial flows.”
Michael Every, strategist at Rabobank in Singapore, said: “The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying: ‘That’s not going to work,’ on steroids. “The market is now treating the UK as if it’s an emerging market. And they’re not wrong in terms of the policy response and the naivety of thinking that boosting demand rather than supply is how you deal with a supply-side shock.”