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Truss’s possible victory in the race to succeed Johnson adds pressure to the pound


the race for succeed Boris Johnson like new leader of the Conservative Party British and therefore Prime Minister is about to come to an end, and everything indicates that the new tenant of number 10 Downing Street will be Lizz Truss. The Secretary of Foreign Affairs disputes the position with the former chancellor Rishi Sunak, but the polls point to her as the winner (it is estimated that she has 59% of the ‘Tory’ deputies in her favor). The problem is that her possible victory adds even more pressure to a pound very weakened.

And all because Truss questioned the independence of the Bank of England (BoE) now that inflation keeps rising and 2023 price forecasts continue to worsen (Citi has already said it expects reach 18%). «Although Truss has refrained from giving too many details, he has alluded to expanding the central bank’s mandate to include measures other than CPI, for example nominal GDP or a measure of the money supply,» when making decisions on rates, Danske Bank experts highlight in a recent report.

In that case, these experts point out, there would be no «significant impact» on the market. But, they point out, «If instead the BoE’s operational independence is threatened, this would be a major headwind for sterling». And precisely the British currency is not now going through its best moment. Although the analysts of the Danish entity insist that they do not expect substantial changes, they do see the possibility of «small changes in the mandate» of the governing body Andrew Bailey.

the pound sterling has lost 4.6% against the dollar in the last month, according to the experts at Shore Capital. The currency, notes Naeem Aslam, chief market analyst at AvaTrade, «is being absolutely battered against the dollarand has reached a level of prices that we have not seen in more than 20 months» due, above all, to the cost of living crisis that is causing high inflation, which will be one of the main challenges of the new prime minister, comment.

«The pound does not give respite. It has had a difficult month and the pressure remains on the currency«, says Neil Wilson, chief markets analyst at Markets.com, who believes that «fears about rising inflation and recession are not helped by the kind of promises made by Liz Truss», which is also affecting the currency.

For example, the candidate ruled outin his last speech before the final Conservative Party election, introduce new taxes or ration power this winter. He also said that he plans, if he becomes prime minister, to draw up an emergency mini-budget in his first month in office, although he did not elaborate on how it would ease the cost-of-living crisis. «Your second promise of him seems lame because the energy crisis it is practically unavoidable and it would be very difficult to avoid energy rationing. However, the most important thing for consumers is not energy rationing, but an aid package that can ease your standard of livingAslam highlights.

The UK faces a number of problems that make the prospect of the pound is worth less than the dollar be less and less preposterous. And it is that in addition to inflation, it is affected by the fact that economic growth has slowed to the point where the threat of a recession is about to become reality.


Furthermore, Truss’s victory could also spark new tensions with the European Union (EU)and it is speculated that the candidate could annul the Northern Ireland protocol of the Brexit agreement by activating article 16, which allows unilateral departing from the protocol if it has caused «serious economic, social or environmental difficulties».

«In the worst case, the EU could end the free trade agreement, which would increase the risk of a trade war,» say analysts at Danske Bank. In his opinion, «a further increase in tensions between the EU and the United Kingdom would most likely represent a major headwind for British assets and therefore for the pound sterling«.


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