Pound jumps against dollar on UK tax U-turn, weak US data

The pound jumped one percent against the dollar on Monday after the British government dropped a controversial tax cut and data showed weak growth in US manufacturing.

A week after hitting an all-time low against the US unit, sterling was up 1.1 percent at $1.1301 around 1530 GMT, for a fifth straight day of rises against the dollar since its September 26 nadir of $1.035.

The rise came after UK finance minister Kwasi Kwarteng went back on a key plank of the mini-budget he presented just days before – abolishing the highest income tax rate of 45 percent for the highest earners.

“This embarrassing climb down, taking unfunded tax cuts off the table, which Chancellor Kwasi Kwarteng has called a distraction, will help reassure the markets a little that the more reckless nature of this new administration can be reined in by the Conservative party,” commented Susannah Streeter, analyst with Hargreaves Lansdown.

Across the Atlantic, data showing the slowest growth since May 2020 in US manufacturing activity in September amid a decline in orders and an expected wider economic slowdown hit the US dollar.

The Institute for Supply Management said its monthly manufacturing index slid 1.9 points to 50.9, well below expectations, and just above the 50 points level indicating growth.

Also Read | U.K. Prime Minister Liz Truss defends economic plan that sent pound tumbling

That could well presage disappointing jobs data due for release Friday, said Fawad Razaqzada, analyst with Forex.com, and signal that Fed attempts to stop runaway inflation are starting to weaken the economy.

The euro was also up to $0.9834, after having started the session in the red as Europe battles an energy crisis.

Russian energy giant Gazprom on Saturday suspended gas deliveries to Italy’s Eni, blaming transport problems in Austria.

Fiona Cincotta, analyst with City Index, noted that would likely further exacerbate fears of supply shortages in Europe as winter approaches.

The yen meanwhile rose against the dollar to stand at $144.32. I had earlier slipped to 145.30 yen — in near sight of a 24-year low of 145.90 yen hit on September 22, which brought Tokyo’s intervention in the currency market amid a widening policy gap between the US and Japanese central banks.

While the US Federal Reserve has been hiking rates to tame inflation, the Bank of Japan has left its ultra-loose monetary policy in place.