Home Business NewsBusiness Pound slides after Sunak and Javid quit

Pound slides after Sunak and Javid quit

by LLB Reporter
6th Jul 22 10:46 am

The pound was already sliding before the UK Government was plunged into chaos, yet the resignations of Rishi Sunak and Sajid Javid have simply added to the currency’s woes as it shows a cabinet in disarray.

Russ Mould, investment director at AJ Bell, said: “Recession fears have weighed on the pound in recent months and the currency has now hit a two-year low against the dollar as inflation continues to hurt consumers and businesses.

“Political chaos adds another layer of uncertainty on top of the recession fears, so it is no wonder the pound is sinking.

In theory a weaker pound is good for the large number of companies on the UK stock market that do business in foreign currencies, as their earnings benefit when translated back into sterling. Yet the recent slump in the oil price is bad news for some of the biggest names on the UK market, principally BP and Shell.

Weakness in oil has a negative read-across to other commodities as the black stuff and many other industrial metal prices can be proxies for economic activity.

Mould added: “Recession fears have been hampering commodity prices in recent weeks as markets are worried that economic activity will stall, leading to a drop in demand for the type of natural resources used to power businesses, both from an energy and components perspective.

“Having slumped in price last night, oil managed to claw back some of its losses on Wednesday as the market stabilised. The question is, how long will this stability last? On one hand, a recession could easily reduce oil demand. On the other, supplies remain tight, so we perhaps won’t see a big price crash if the world grinds to an economic halt.

“Wednesday’s oil price bounce back helped lift the FTSE 100 by 2.4% and gave support to markets across the rest of Europe. However, don’t be fooled into thinking this is the start of a big recovery. Markets are likely to stay volatile for the near-term.”

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