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Pound up against dollar as Rishi Sunak becomes next PM

THE pound surged today as Rishi Sunak was named Britain’s 57th Prime Minister.

Sterling hit $1.14 today when it became clear that the former Chancellor was in line to get the top job in politics.

The pound went up after Boris Johnson pulled out of the race to be PM

The pound was sitting at around $1.11 on Friday – the day after Liz Truss stepped down as PM just six weeks into the job.

Penny Mordaunt dropped out of the contest at the last minute after she failed to secure the support of 100 colleagues.

Mr Sunak took an early lead in the Tory leadership race, having lost the last one to Liz Truss just weeks ago.

Within hours of Ms Truss announcing her resignation last Thursday, MPs came out in droves to support Mr Sunak.

The pound dipped just under $1.13 as the markets digested the news of Sunak’s win, falling back from the earlier high which came after Boris Johnson said he was not running.

Sterling is currently just over $1.13 at the time of writing. The FTSE 100 hit a session high, up nearly 0.7% at 7015 points.

10-year gilts yields fell 28 basis points to 3.774%, nearing their lowest for a month.

Previously government bonds (known as gilts) had shot up off the back of the disastrous mini-Budget putting financial stability at risk.

People pay attention to the yields – the amount of interest on the bonds which is described in % terms – because this shows investors’ confidence in them.

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

It crashed to a record low of $1.03 in return for £1 following the disastrous mini-Budget over fears of unfunded tax cuts.

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

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

Following these u-turns, the pound traded higher and rallied again on Thursday, shooting up to $1.13 against the dollar, in a damning response to Liz Truss’ resignation.

The pound slumped because investors were worried about the huge increase in government debt required to fund the £45 billion of mini-Budget tax cuts.

There were fears about how the mini-Budget’s massive tax cuts would be funded and a lack of official costing didn’t help.

A huge increase in public borrowing also comes at the worst possible time as government debt has become much more expensive.

The pound had already been falling against the dollar this year because of worries about rising prices (inflation) caused by the energy crisis.

Giles Coghlan, chief market analyst at HYCM, said: “The past three weeks have been nothing short of chaos in Westminster.

“With Rishi Sunak named as the UK’s third prime minister in three months, the question now is whether today’s events will mark the beginning of a turn higher for the GBP as confidence returns in the Government’s fiscal plans.”

“Already, the markets have stabilised on the expectation that Sunak may be able to restore the UK’s finances.

“Before today’s announcement, the pound rallied higher at $1.13 on Monday morning as Boris Johnson exited the leadership contest, while the FTSE 100 started the day with a 0.5% boost, bringing it above the 7,000-point mark for the first time in a week.”

The renewed confidence means investors now believe that the Bank of England is likely to hike interest less than previously expected – just under 5% instead of 6%.

Ultimately, this could mean cheaper mortgage repayments for homeowners, he added.

What does a stronger pound mean for me?

The recovery of Sterling will be good news for anyone buying holiday cash.

You’ll get more dollars for each £1 you exchange compared to recent weeks, when the pound plummeted.

If the value of the pound versus the dollar is $1.14/£1 then for every £100 you change up, you get £114 dollars.

A currency is weak if it is lower in value than other foreign currencies and gives you a poorer value when you exchange it.

An exchange rate is how much your pounds will be worth in a foreign currency.

A stronger pound means when you’re spending money abroad it will be less expensive, compared to when the pound was weaker.

There are some steps you can take to make your travel money go further.

For instance there are specific debit and credit cards designed for using abroad, which won’t charge you for each transaction like a standard card will.

And compare travel money companies online, including the rates and any fees to find the best deal.

Meanwhile you’ll want to avoid paying for travel money with a credit card â€“ it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.

The weak pound has also been hitting drivers in the pocket because oil is priced in dollars.

It means drivers are paying almost a fiver more for a tank of fuel compared to what they would have if the pound was at its February level of $1.35, according to the AA.

But, as the pound goes up, the hit on your wallet should ease up.

It makes it more important than ever to check you’re getting the best price for your petrol – here’s how to find them near you.

It’s also good news for shoppers, because prices should go down as the pound recovers.

Goods that shops buy now are likely to be less expensive than those bought directly after the mini-Budget.

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  1. Pingback: Martin Lewis explains what Bank of England rate rise means for you

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