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Will PM Truss tank the Pound?

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Britain’s new Prime Minister, Liz Truss, is helping to sink the beleaguered pound even further – and the trajectory is only likely to get worse for the UK currency, warned the CEO of a leading independent financial advisory and fintech.

“Already one of the worst-performing currencies of the year, the pound dropped on Monday to the weakest it’s been since 1985,” said Nigel Green of deVere Group, soon after it was announced that Truss won the Conservative party leadership and becomes Boris Johnson’s successor.

“Of course, part of the reason is that Russia has indefinitely shut down the Nord Stream 1 gas pipeline to Europe as the G7 agrees to impose a price cap on Russian oil exports.

“However, there’s also no getting away from the fact that the UK currency is going to react negatively to the country’s new Prime Minister – even if there’s a brief relief bounce on the fact that at least the leadership contest is over.  Any honeymoon will be extremely short-lived.”

Green warned that Truss’s unfunded, pie-in-the-sky tax cuts and massive spending plans mean big rises in borrowing.

“They blow an enormous £170 bln hole in Britain’s finances, and would push up inflation by increasing money growth, prompting more aggressive interest rate increases from the Bank of England as it struggles to control inflation, which is still at a 40-year high.”

Populist agenda

Truss’s “populist agenda”, said Green, including the UK’s tough stance on the relationship with the EU and single market access, and issues with the Northern Ireland Protocol, are also “driving negative sentiment for sterling.”

In an earlier comment, the deVere chief said that the new PM’s hint that she would demand a review of the Bank of England’s mandate was also weighing on the pound.

“We expect the pound – and the gilt market – to react badly to any sense of growing political interference. The politicisation of the UK’s central bank will spook markets,” he affirmed.

The deVere CEO urged those with heavy exposure to UK financial assets to “review their portfolio as it’s time to buckle up.”

He concluded that, “Truss is helping to tank the pound and we expect it to get a lot worse for the UK currency, before it gets better.”