The pound has jumped to a two-week high as Kwasi Kwarteng looks set to publish his debt-reduction plans and official economic forecasts sooner than expected.
After hitting a record low last week around $1.035, it has now climbed above its mini-budget levels to around $1.135.
The chancellor is expected to outline how his package of tax cuts will be paid for later this month, despite previously insisting he would wait until November 23.
John Briggs, NatWest Markets’ head of economics and markets strategy said axing the 45p tax band had been well-received by investors.
“The about-face will not have a huge impact on the overall UK fiscal situation in our view.
“Investors took it as a signal that the UK government could and is at least partially willing to walk back from its intentions that so disrupted markets over the past week.”
Read more: Kwarteng’s reversal of 45p tax cut: Richest 5% households still stand to gain most
The rise of the pound is also partly due to the softening of the dollar as the index fell against other major currencies for a fourth consecutive day on Monday and continued to trade at lower levels on Tuesday morning.
Analysts are still bearish on the outlook as the UK government tries to reassure markets after its mini-budget shattered investor confidence.
Standard Chartered and Royal Bank of Canada both expect the pound to fall almost 10% from current levels by the end of the year.
Nomura and Morgan Stanley are forecasting it will drop to parity with the dollar during the same period.
Kamal Sharma, FX strategist at Bank of America, said: “We continue to maintain a bearish view on GBP and look for GBP/USD to breach 1.10 and EUR/GBP through 0.90.
“In our view, the risks are rising for a more disorderly unravelling unless the market can be convinced that the UK has a credible plan to tackle the large structural imbalance”
Read more: Does Kwarteng’s tax U-turn mean interest rate won’t rise to 6% as predicted?
The chancellor has been under pressure to provide more details on his economic strategy – including independent forecasts to back the plans up – since announcing the biggest package of tax cuts in half a century.
In his speech to the Tory conference on Monday, Kwarteng said it would be published “shortly”.
He said the announcement will “set out how we plan to get debt falling as a percentage of GDP over the medium term”, adding: “We will act in a fiscally sustainable and responsible way.”
“Having the announcement sooner rather than later is the right thing to do, as the longer the markets wait for proof that the government’s fiscal agenda is sound, the higher the risk of turbulence,” Nigel Green, CEO of deVere Group, said.
Watch: Pound strengthens on UK government’s plans to scrap tax cut for wealthy
,,,
