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Pound hits highest since before mini-budget as Rishi Sunak gives first PM speech

Pound and dollar banknotes. Rishi Sunak has been sworn in as UK PM
The pound climbed more than 0.4% against the US greenback to $1.1327 on the day of Rishi Sunak's speech, holding most of its gains made since late last week when Liz Truss announced her resignation. Photo: Dado Ruvic/Reuters (Dado Ruvic / reuters)

The pound hit its highest level against the US dollar (GBPUSD=X) on Tuesday, climbing above where it was trading before Liz Truss's and Kwasi Kwarteng’s mini-budget.

Sterling surged as much as 2% on the day against the US greenback to $1.1499, as the dollar weakened. Against the euro (GBPEUR=X) it was up 0.8%.

This meant that the British currency was worth more than at any point since 15 September. Liz Truss was appointed prime minister on 5 September, and helped to drag sterling to an all-time low of 1.032 against the dollar just weeks later.

On the other hand, the safe-haven dollar suffered during the day as official data revealed America's housing market began to slump.

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US house prices grew 13% in the 12 months to August, down from 15.6% in July, and below economist's expectation of 14.4% growth.

According to the S&P index, the biggest drop since its record began.

It also came as traders digested Rishi Sunak's first speech as UK prime minister, and awaited more details on economic and fiscal policy.

Sunak, one of the wealthiest politicians in Westminster and the youngest UK PM for 200 years, was sworn in as prime minister.

The 42 year-old met with King Charles earlier in the day, before speaking outside of 10 Downing Street.

"Right now our country is facing a profound economic crisis. The aftermath of COVID still lingers," he said, adding that he would place "economic stability and confidence at the heart of this government's agenda".

But he warned: "This will mean difficult decisions to come."

He also paid tribute to former PM Liz Truss, who lasted six weeks in the job, saying that she was not wrong to want to improve growth in this country, but that "mistakes were made".

"Not born of ill will or bad intentions, quite the opposite. But mistakes nonetheless," he said, adding that he was focussed on fixing the errors made.

He is expected to keep Jeremy Hunt as chancellor, who will deliver a budget on 31 October.

Read more: Bank of England's chief economist criticises Liz Truss

Meanwhile, UK gilts also extended their gains, now back at levels last seen on the 22 September just prior to the mini-budget, after posting the biggest daily drop in yields in 30 years. The yield on 10-year government bonds dipped three basis points to 3.7%.

Earlier on Tuesday, Liz Truss also made her resignation speech, standing by her decisions.

She said: “We simply cannot afford to be a low-growth country where the government takes up an increasing share of our national wealth and where there are huge divides between different parts of our country.

“We need to take advantage of our Brexit freedoms to do things differently. This means delivering more freedom for our own citizens. And restoring power to democratic institutions. It means lower taxes so people can keep more of the money that they earn.”

Financial markets are betting that former chancellor Sunak will restore credibility after Truss's chaotic time in office.

Read more: Cost of living: Prices of pasta and tea soar as inflation bites

Michael Brown, head of Market intelligence at Caxton, said: "It seems that the announcement was pretty well priced in by this point – especially after sterling’s notable gains at the Asia open last night.

"Having said that, Sunak taking over as PM should restore a significant amount of credibility around UK policy, which is likely to limit downside for sterling assets in the near term."

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.”

Watch: How does inflation affect interest rates?