The pound strengthened by 0.2% against the dollar to $1.3670 after Sir Keir Starmer confirmed Rachel Reeves would be Chancellor until the next election. Prior to this, sterling declined 1% as Starmer withheld reassurance on Reeves’ position during PMQs. The UK bond markets reacted sharply to the government's reversal on welfare policy, reminiscent of the Liz Truss era. Concerns over fiscal stability were sparked by increased borrowing costs and government’s political instability, driven by market reactions to statements concerning Reeves' job security.
"The echoes of Truss in 2022 are unmistakable. Back then, it was a reckless mini-budget that shattered market confidence. This time, it's a government lurching from one policy retreat to another, raising serious doubts about fiscal control and political authority."
"By selling sterling assets investors have probably kept UK chancellor Rachel Reeves in her post. The pressure from investors might have influenced her job security amid government instability."
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