British Pound Strengthens Against US Dollar on Rishi Sunak's News of Becoming British Prime Minister

Pound Index tracks a representative basket of currencies by considering global currency market liquidity and trading partners of the United Kingdom. These currencies are Canadian dollar, euro, US dollar, yen, Australian dollar and Swiss Franc.

The dollar retreated on Monday after the October S&P Global Composite PMI release showed US business activity contracting for a fourth straight month, an indication that the US Federal Reserve's aggressive monetary tightening was having a significant impact.

Sunak on Tuesday had scripted history for a series of firsts -- the first Indian-origin person to lead the UK, the first non-white, person of colour to become the UK's PM, at the age of 42, he is also the youngest person to take the office in more than 200 years, as well as the first PM to take oath under the new King Charles III.

Last week, the Wall Street Journal reported that the pace of further rate hikes after November's lift will be less clear, citing sources familiar with the Fed Reserve's thinking.

On Tuesday, as Rishi Sunak became PM, he said that his government would have integrity, professionalism and accountability at every level. "I stand here before you ready to lead our country into the future, to put your needs above politics, to reach out and build a govt that represents the very best traditions of my party. Together we can achieve incredible things," said Sunak.

"We will create a future-worthy of the sacrifices so many have made and fill tomorrow and every day thereafter with hope," he added. Sunak said that he will make the most of the Brexit opportunities. "That work begins immediately," he said, adding, "My government will build an economy that makes the most of the Brexit opportunities."

He began his speech by highlighting UK's profound economic crisis. Sunak said, "Right now our country is facing a profound economic crisis. The aftermath of Covid still lingers."

Experts said financial markets believe there is a 60 per cent probability that sterling will reach dollar parity by the end of 2022. A long-term decline in the valuation of the pound increases the price of imported goods, which can feed into consumer price inflation.

"We continue to expect a relief rally in the currency pair once the new Conservative Party leader is chosen, but we have had to tone down our expectations for the extent of that rally given the strength of the USD and general conditions surrounding risk appetite," said Stephen Gallo, European head of FX strategy at BMO Capital Markets.