GBP USD Drops as Rishi Sunak Joins Cabinet Resignations

The pound sunk below the 1.19 benchmark against the dollar on Wednesday for the first time since March 2020, reflecting growing concerns about recession around the world and future UK economic growth. 

The UK currency’s lurch lower also came as Boris Johnson’s government plunged further into chaos following the resignation of senior figures, including chancellor Rishi Sunak and health secretary Sajid Javid. 

On Wednesday, Bank of England (BoE) chief economist Huw Pill said he is open to voting to raise interest rates faster than the gradual steps favoured by the central bank. It is a stance he’s prepared to take to rein in “uncomfortably high” inflation. 

The BoE had a steady series of 25 basis point increases in borrowing costs this year, lifting rates to 1.25%. 

“The statement reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle while simultaneously emphasising the conditionality of any such change,” Pill told a central banking conference hosted by King’s Business School. 

Sir Jon Cunliffe echoed Pill’s comments at the same event. The BoE’s deputy governor said the central bank would act to stop the recent surge in inflation to 40-year highs from becoming engrained in the economy. 

He said: “We will do whatever is necessary to ensure that as this period of inflation goes through the economy, it does not leave us with a persistent domestically generated inflation problem.” 

Mr Pill told the central banking conference that this pledge “reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle, while simultaneously emphasising the conditionality of any such change in pace on the flow of new data and analysis”. 

Risk-off mood boosts dollar

The safe-haven dollar’s resilience in times of economic trouble kept it well supported on Wednesday amid mounting fears of a global recession. 

A risk-off mood in markets and the beleaguered pound aren’t the only driving forces behind the US currency. Expectations that the Federal Reserve will stick to its aggressive rate hike path have reaffirmed the US central bank’s tough stance on inflation – boosting the dollar. 

Looking ahead

Huw Pill will speak again on Thursday, as is Monetary Policy Committee member Dr Catherine L Mann, with investors eager for clues about the pace of policy tightening. 

The Fed publishes the minutes from last month’s Federal Open Market Committee meeting on Wednesday evening. 

The ADP employment report – a precursor for Friday’s closely watched US non-farm payrolls – hits the headlines on Thursday. 

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