The British pound fell to its lowest level against the U.S. dollar since 1985 before bouncing back on Monday, as investors digest the U.K. government’s plans to stimulate the economy by cutting taxes while borrowing more money to spend on programs.
Traders pushed the value of the U.K. pound down five per cent, just above $1.03 US, on Monday morning, the first trading day after Chancellor of the Exchequer Kwasi Kwarteng — the equivalent to Canada’s finance minister — unveiled the government’s plans to boost economic growth this year.
In the face of sluggish growth and sky-high inflation, the governing Conservatives plan to slash corporate and personal income taxes to their lowest level in half a century, while also borrowing more money to subsidize food and energy prices for consumers.
“The Truss administration is rebooting the old Reaganomics playbook with large, unfunded personal/corporate tax cuts expected to drive supply-side investment and spur growth,” said Bipan Rai, a foreign exchange analyst with CIBC.
The pound sold off heavily on the news, as traders expressed their doubts that the plan would work. Prior to Monday, the pound hadn’t been priced this low in U.S. dollars since Feb. 25, 1985, when it was going for about $1.05 and Margaret Thatcher was in power.
The early losses on Monday were mostly coming from trading in Asia. When trading in Europe began, the pound began to recover. By the afternoon local time in London, the pound was just barely positive on the day, after speculation grew that the Bank of England migh announce an emergency, unplanned rate hike.
In the end, that didn’t happen as the central bank merely put out a statement saying it “would not hesitate to change interest rates by as much as needed,” which caused the pound to move down to about $1.06 US again.
The seesaw ride speaks to just how uncertain investors are in the British government’s ability to rein in inflation without collapsing its already sluggish economy.
“The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying, ‘That’s not going to work,'” said Rabobank strategist Michael Every.
“The market is now treating the U.K. as if it’s an emerging market. And they’re not wrong in terms of the policy response and the naivety of thinking that boosting demand rather than supply is how you deal with a supply-side shock.”
Strong chance of a further drop
Despite Monday’s up-and-down ride, experts suggest the pound could well go lower still.
“Loose fiscal policy during a period of high inflation means that [the pound] will have to revalue lower,” Rai said.
The sell-off in the pound is increasing the likelihood that the Bank of England will have to raise interest rates even more aggressively than it has been, to staunch the bleeding. Traders are expecting an unprecedented 125-point hike when the Bank of England meets in early November.
The yield on two-year government debt priced in pounds — a bond known as a gilt — jumped by its highest level in a decade on Friday, before beating that record on Monday. Two-year British gilts are yielding more than 4.5 per cent on Monday.
A year ago, that same government debt was yielding less than 0.5 per cent.
Anything priced in pounds is sinking like a stone for many valid reasons, but the strength of the U.S. dollar certainly isn’t helping. As it often does during times of economic uncertainty, the U.S. dollar is strengthening as foreign investors flock to its perceived safety.
The loonie is trading at 73 cents US on Monday morning, its lowest level since 2020.
DoorDash laying off 1,250 people, about 6% of its workforce – CBC News
DoorDash Inc. said on Wednesday it was cutting about 1,250 jobs, or six per cent of its total workforce, as the food-delivery company looks to keep a lid on costs to cope with a slowdown in demand.
DoorDash went on a hiring spree to cater to a flood of orders from people stuck at home during the height of the pandemic, but a sudden drop in demand from inflation-wary customers has left the company grappling with ballooning costs.
“We were not as rigorous as we should have been in managing our team growth … That’s on me. As a result, operating expenses grew quickly,” chief executive Tony Xu said in a memo to employees that was posted on the company’s website.
“Given how quickly we hired, our operating expenses — if left unabated — would continue to outgrow our revenue.”
DoorDash has about 20,000 employees worldwide, and “some of the affected employees are based in Canada,” the company told CBC News in a statement, without elaborating.
The company joins a growing list of technology firms, including Amazon, Facebook-owner Meta, Twitter, Shopify and others that have laid off thousands of employees in recent weeks as they brace for a potential economic downturn.
British food delivery company Deliveroo said in late October that sales growth would be at the lower end of its previous forecast. In September, Winnipeg-based food delivery app SkipTheDishes laid off 350 workers.
Earlier this month, DoorDash reported a bigger-than-expected quarterly net loss of $295 million US, raising questions about the growth prospect of delivery firms as economies reopen. The company’s shares have lost two thirds of their value this year.
“Greater emphasis on its cost structure is a welcoming sign, especially given the potential for consumer spending to deteriorate faster than expected,” said Angelo Zino, analyst at CFRA Research.
'I didn't ever try to commit fraud on anyone,' FTX founder Sam Bankman-Fried says – CBC News
The man at the centre of collapsed cryptocurrency exchange FTX made his first public appearance since the saga began, telling a New York audience on Wednesday that it was never his intention to commit fraud.
Sam Bankman-Fried, the 30-year-old founder of FTX, appeared at the New York Times’ Dealbook Summit on Wednesday, for an interview with journalist Andrew Ross Sorkin about what happened to cause his cryptocurrency firm to collapse into bankruptcy earlier this month.
The firm, once worth more than $32 billion US, entered bankruptcy protection on Nov. 11 after a whirlwind series of days that saw it go from trying to solve a liquidity crunch by merging with a rival, to having that deal fall apart and succumbing to a run on the bank as traders pulled out $6 billion in funds within three days.
Filings show the company owes almost $10 billion to various creditors, and at least $1 billion worth of customer deposits are missing.
Among numerous allegations, customer deposits at FTX appear to have been used as capital and collateral for loans for an investment firm called Alameda affiliated with him — an allegation that amounts to fraud, and one that he pushed back against strongly.
“I didn’t ever try to commit fraud on anyone,” he told Sorkin, “I didn’t knowingly co-mingle funds.”
While he acknowledged mistakes were made, Bankman-Fried rejected repeated attempts to characterize what happened at his cryptocurrency firm as being in any way malicious or illegal.
“I am deeply sorry about what happened,” he said. “I was excited about the prospects of FTX a month ago, I saw it as a thriving, growing business.”
Bankman-Fried has seen his personal net worth evaporate in the debacle, from more than $26 billion a year ago to “close to nothing” today — and he insisted that he doesn’t have any of the money that has vanished.
“I don’t have any hidden funds here. Everything I have, I am disclosing,” he said.
“I’m down to one working credit card … [and] hundreds of dollars or something like that, in a bank account.”
He says, to his knowledge, there are enough funds at FTX to give users their money. But his hands are tied since he no longer has a formal role at the company since it entered bankruptcy proceedings.
“I believe that withdrawals could be opened up today and everyone could be made whole,” he said.
John Jay Ray III, the restructuring expert who has been handling FTX’s bankruptcy proceedings has said in legal filings that Bankman-Fried appears to have treated the company as his “personal fiefdom” and has called the fiasco a “complete failure of corporate controls.”
Bankman-Fried has been active on Twitter since the debacle first started, but his appearance on Wednesday marks his first public appearance since the saga began.
There was speculation he was going to appear in person, but ultimately he appeared via video link from the Bahamas, where he lives.
Sorkin asked Bankman-Fried if he did not appear in person because he is worried about being within the reach of U.S. agencies including the Department of Justice and the Securities and Exchange Commission, both of which are probing what happened at FTX.
Bankman-Fried appeared to side-step that question, remarking instead that, to his knowledge, he can still legally enter the U.S.
“I’ve seen a lot of the hearings that have been happening [and] would not be surprised if some time I am out there talking about what happened,” he said, adding that he “does not personally think” he has any criminal liability to worry about.
That being said, he said his legal team is “very much not” supportive of his decision to appear at the summit and speak publicly about what happened at FTX. His lawyers advice was “to recede into a hole,” he joked.
Investors focus on Powell's comments which put gold back into rally mode – Kitco NEWS
Today gold futures are trading solidly higher as market participants react to Chairman Jerome Powell’s speech at the Hutchings Center on Fiscal and Monetary Policy, held at the Brookings Institution in Washington. Market participants focused intently on his remarks which alluded to a dynamic change in the Federal Reserve’s monetary policy.
“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down … The time for moderating the pace of rate increases may come as soon as the December meeting.”
However, it must be noted that the reaction by investors at large seems to focus on what they had hoped to hear which is the Fed will begin to raise rates at a slower pace rather than his nuanced message that the time required for the Federal Reserve to achieve their goal will take much longer.
“It is likely that restoring price stability will require holding policy at a restrictive level for some time … History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
As of 6:16 PM EST gold futures basis of the most active February, 2023 Comex contract is fixed at $1784.60 After factoring in today’s double-digit advance comprised of dollar weakness, buyers in the market along with the rollover from the December to February contract month.
Chairman Powell’s speech today diminished the concern of investors as they reacted to other members of the Federal Reserve who have been extremely vocal about upcoming interest rate hikes. Specifically, recent remarks by James Bullard underscored the hawkish intent of the Federal Reserve. Last week he commented on the need for the Federal Reserve’s benchmark rate to go as high as 7% to deal with inflation. This week he said that “the Federal Reserve will likely need to keep its benchmark policy rate north of 5% for most of 2023 and into 2024 to succeed in taming inflation.”
Chairman Powell’s statements were not in conflict in any way with those made earlier by James Bullard and other members of the Federal Reserve in his prepared speech. However, the chairman was able to deliver this message in a much softer tone. Chairman Powell in essence cemented a 50-basis point rate hike at the December FOMC meeting. However, he stressed that slowing the pace of rate hikes would require that the Fed maintains a restrictive monetary policy for a longer period.
Gold’s recent rally from $1621 to just shy of $1800 is a reflection of a major change in the market sentiment of investors. It suggests that investors are focusing intently on inflation and that lowering inflation to restore price stability will be a multi-year process.
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