Former Foreign Secretary Liz Truss won the Conservative Party leadership race yesterday to replace Boris Johnson. Both are travelling to Balmoral in Scotland today to meet the Queen where Johnson is set to offer his resignation, followed by Truss’ appointment as Prime Minister by the monarch during which she will be asked to form her government.
Truss is set to have a difficult start as a Prime Minister as inflation is reaching decades-high levels, recession is looming, and the government's current account deficit are already at record levels, which may put the sterling under a lot of stress. Liz Truss is also looking to review the Bank of England’s mandate. Her campaign team said, “Prime Minister, Liz would review the Bank’s mandate, as after 25 years, she believes it is only right to ensure it is fit for purpose and works for the current economic context”.
Liz Truss also said last week she would start addressing the rising cost of energy as soon as this week, but any short term solution will increase government spending and debt, which could in turn increase stress on the sterling and see the Bank of England increase interest rates even further. Ms Truss has promised to deliver £30bn in tax cuts in an emergency budget later this month, including a reversal of the April’s raise in National Insurance, and there are talks of a freeze on energy bills by paying companies to sell gas and electricity below market rates this winter and by focusing on domestic supply of energy. A very similar plan to Macron’s energy cap plan from last year in France which has seen inflation limited to only 6.5% this year, lower than the 10.1% currently in the UK and the lowest in the European Union.
Over the course of its monthly meetings, OPEC + is resisting calls from Westerners to open its floodgates more widely in order to contain the surge in prices and inflation at its highest in decades. Monday, OPEC+ countries? decided to reduce their production in October to support oil prices. Representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) and their ten allies have indeed agreed to "return to the quotas of August", a drop of 100,000 barrels compared to September, announced in a press release the alliance, whose headquarters are in Vienna.
The group, which met by videoconference, leaves the door open to new discussions before the next meeting on October 5, “to respond if necessary to market developments”. Driven by the news, the prices of the two world crude oil benchmarks rose more than 3%, to more than 97.50 dollars a barrel of Brent from the North Sea and nearly 91 dollars that of WTI in the middle of the afternoon.
Cable saw some stability yesterday. GBPUSD opened at 1.1518 and closed at 1.1513.
GBPEUR followed a similar trend. The pair opened at 1.1573 and closed at 1.1593.
EURUSD also saw few movements. The pair opened at 0.9950 and closed at 0.9926 yesterday.