Market Extra: Pound climbs, gilt yields fall again on expectations U.K.’s Kwarteng will speed up debt-cutting plans

United States

The British pound rose and gilt yields fell a second day after reports that U.K. Chancellor Kwasi Kwarteng will publish debt-reducing plans early, a day after a U-turn over widely criticized tax cuts for the wealthy.

The pound GBPUSD, +0.34% rose 0.5% to $ 1.1378, bringing the currency well above the $ 1.12 level seen ahead of the Sept. 23 budget announcement that sent the currency crashing, yields soaring and sparked a global financial rout. The yield on the 10-year gilt yield TMBMKGB-10Y, 3.781% was 6 basis points lower at 3.896%.

Kwarteng plans to publish details on how to bring down the U.K. budget in October after previously saying he would wait until Nov. 23, according to the Financial Times, the BBC and other U.K publications.

Markets saw a similar reaction on Monday after the U.K. government said it would can plans to scrap the highest tax rate, cancelling one of the key components of a debt-funded budget that had roiled financial markets.

The pound was also rising against the backdrop of a falling dollar DXY, -0.55%, as investors piled into perceived riskier assets such as equities, with U.S. stock futures ES00, +1.65% YM00, +1.38% NQ00, +2.06% pointing to another day of strong gains.

The Dow Jones Industrial Average DJIA, +2.66% saw its best session since June on Monday after weaker-than-expected manufacturing data that could mean the Federal Reserve eases up on its interest-rate hiking campaign sooner than later.

That’s as some cautioned against into thinking that sterling’s reaction is a vote of confidence in the government, said Seema Shah, chief global strategist at Principal Global Investor.

“It is true that sterling has had a mini-rally but, firstly, this was from historically weak levels to begin with and, secondly, the new value of sterling prices in steep rate rises which have been made necessary by the chaotic market response to the Chancellor’s growth plan. To be back where we were – but with a potential mortgage crisis now baked into the cake – is hardly a triumph,” said Shah, in a note to clients.