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Pound edges up against the dollar as Liz Truss resigns

THE pound has rallied following the dramatic resignation of Liz Truss after just 44 days in office.

In an astonishing statement made outside Downing Street this afternoon, the Prime Minister finally bowed to calls from a dozen Tory MPs to resign.

How the value of the pound has changed during Liz Truss’ time as PM

Sterling shot up to $1.13 against the dollar before the speech as markets anticipated that Ms Truss would resign.

It is currently sitting at around $1.12 – up 0.32% – at the time of writing.

The value of the pound has been a rollercoaster recently, as markets were spooked by political turmoil.

Markets rallied on Monday after Jeremy Hunt ripped up most of last month’s mini-Budget policies.

The Chancellor announced the planned 1p cut to the basic tax rate will be delayed “indefinitely” and said the energy price guarantee would only last until April instead of the planned two years.

Following these u-turns, the pound was trading 1.3% higher against the dollar to $1.13.

Yields on gilts – UK government bonds – have also eased slightly in response to Prime Minister Liz Truss’s decision to resign.

UK 30-year gilt yields, which fall as price improve, fell back by 0.44% to 3.86% on Thursday.

Yields had dropped even further shortly before the Prime Minister’s statement at 1.30pm but sprang back slightly.

How yields have been trading has become closely watched as they determine how much money investors want in return for owning the government bonds and directly impacts the cost of borrowing for the government and mortgage holders.

Following the mini-Budget, markets have been spooked over rising government debt.

This triggered the sale of government bonds, which put several large pension funds at risk of collapse.

This would have had a catastrophic effect on some Brits’ private pension pots and likely would have resulted in a downward spiral of the market.

It meant the Bank of England had to make a dramatic intervention to buy government bonds to prevent a financial meltdown.

Some types of pension – known as defined benefit (DB) or final salary – are more invested in gilts (government bonds), and so are more exposed to falling gilt prices.

But anyone with a private pension is not directly affected by the Bank of England’s bond buying, which ended on Friday.

In total, it bought a total of £19.3billion worth of government bonds.

Traders are also now betting that the Bank of England won’t have to raise interest rates as much as feared.

The Bank of England’s deputy governor of monetary policy has questioned whether “dramatic” hikes in interest rates are necessary in a speech this morning.

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