Pound, gilts pare gains after UK’s Truss confirms resignation

The pound and gilts pared some gains after Liz Truss announced she was resigning as UK prime minister, capping weeks of speculation on the future of her premiership since her initial fiscal policy drove markets into turmoil.

Sterling traded around 0.3% higher on the day at $1.1252, after rallying by as much as 0.8%. 10-year UK bond yields were 3 basis points lower on the day at 3.84%. Truss said that the UK Tory leadership vote would be completed in a week, although Chancellor of the Exchequer Jeremy Hunt won’t stand to be Conservative Party leader, according to a spokesman.

“Political intrigue will dominate the price action until the dust settles, but we expect the fundamentals to reassert themselves once that happens,” said Stephen Gallo, head of European FX strategy at Bank of Montreal. “The pound’s broad appreciation potential is still very constrained in our view.”

The administration has already reversed most of Truss’ vast unfunded tax-cut pledges, curbing volatility in the gilt market and helping the pound to recover to levels seen before she unveiled her mini-budget in September. Her resignation could help cool nerves further as investor await clarity on the projected size of the budget deficit.

The government had been due to publish its medium-term economic plan and forecasts from the fiscal watchdog slated at the end of the month.