Interest Rate Hedging In Volatile Markets

The mini budget delivered by UK Chancellor Kwasi Kwarteng on Friday, 23 September received an overwhelmingly negative response from the financial markets. When Asian markets reopened on the Sunday night UK time that followed, and having had the weekend to digest the media response, the initial reaction to the budget was exacerbated, with the GBP hitting an all-time low of 1.03 against USD.

This market reaction was caused by a combination of the Government's proposed unfunded tax cuts, together with the rife circulation of rumours that the Bank of England was stepping in with an unscheduled interest rate rise. Whilst further interest rate rises since that budget have not yet materialised, we have instead seen some significant U-turns by the Government on its proposed unfunded tax cuts as well as a change in Prime Minister, resulting in a settling down of the financial markets. GBP now sits at 1.15 against USD. Whether this is just the calm before the storm is worthy