The confidence crisis surrounding the latest actions announced by the British authorities seems to find no end as investors become ever more cautious.
The successive announcements made by the government and the Bank of England have put the markets in disarray.
Daniel Takieddine, CEO MENA BDSwiss said, “Investors are backing away from UK bonds as they fear debt could spiral out of control in light of the tax cuts announced by the government. This in turn has pushed yields up and prompted the central bank to intervene.
“However, such an intervention from the central bank could undermine its efforts to quell inflation. Its intention to start buying bonds to support the debt market has stopped yields from spiking and pushed the stock market higher today. However, it could fuel more volatility and add pressure on the British pound.
“The currency has already reached historic lows against the dollar due to the aggressive stance of the Federal Reserve and could see more losses now against other major currencies like the euro or the Japanese yen.
“These conditions could push investors away from UK markets towards safer assets.
“This comes at a time when sentiment among investors is already fueled by risk-aversion. The US dollar and US markets in general could be major beneficiaries as investors could flock in their direction.”