British pound strengthens on U.K. government’s plans to scrap tax cut for wealthy

Yahoo Finance's Jared Blikre breaks down how the British pound is responding to the UK government's about-face on its tax plan.

Video transcript

AKIKO FUJITA: Well, the UK government is dropping its plans to cut income tax for top earners after sparking volatility for the British pound, sending the currency to record lows. Let's bring in Yahoo Finance's Jared Blikre on the bounceback that we're seeing in the sterling today. Quite a bit of a U-turn here.

JARED BLIKRE: Yes, it is, and quite a bit of a U-turn for the Chancellor of the Exchequer, walking back one of the more controversial aspects of that easing plan, although the British government doesn't want to be seen as easing because they're also facing very, very high inflation. So let's go straight to the British pound versus the US dollar. This is over the last five days. In fact, this is the strongest showing for the pound over five days since March 2020. That was the depths of the pandemic selloff.

And let me just show you a max chart here. So we are coming off, as you said, Akiko, record lows, depending on your time frame here. But this is as the British pound was almost at parity with the US dollar. Now, I don't want to get too much ahead of myself, but there is a lot of speculation that there could be something akin to a new Plaza accord.

That would be where central bankers gather around the world as they did in the mid 1980s to address a very strong dollar. And we saw the kind of ad hoc measures by the UK government, by the BOE. And lots of people looking at that saying, well, enough is enough. We need to have some concerted action.

So here is a year to date chart of the US dollar versus everything else. Some of these are inverted, like versus the euro and the British pound. But you can see the incredible appreciation. As I've been pointing out, 20% for the US dollar versus the British pound. And then you throw in the Japanese yen, up 25%. That's the US dollar. And then Argentine peso, the Turkish lira, all of these on the top row. So I don't wish to belabor the point too much, but it gets back to that strengthening dollar.

Now, here is the US dollar index. This is heavily weighted towards the Euro, also a bit towards the pound. I just want to show that this is a max chart going back to the 1980s. We have yet to hit what is probably the most serious potential resistance at 120. Nevertheless, the dollar has come so far, so fast. And it looks to be peeling back a little bit. I'm finding a little bit more evidence in the futures market.

Now you just heard from Ines Ferre. She was talking about the strength of crude oil. But I want to show you what else is happening in commodities today. So here's crude oil. It's up over 3%. But palladium up 4%, orange juice up 4%, RBOB gasoline up 4%, and silver, that is up 7%. Haven't talked about gold and silver in a while. Let me just show you gold, real quickly. This is a big shootup here. This could be forecasting a weakening dollar. If that's the case, well, then risk assets, such as equities, should also be able to catch a bounce.

Now, it's too early to call this move. But if we get continuation, especially tomorrow, probably going to see risk assets take off. Again, all of this predicated on a lower US dollar. Have to see some confirmation in the close today and tomorrow. But we'll see, Akiko. And we'll talk about it tomorrow, I'm sure.

AKIKO FUJITA: Yes, should make for a very interesting week. Thanks so much for that, Jared.