The foreign exchange market started the last week of September with intense fluctuations.
On Monday (26th), the dollar rose 2.53% against the real, trading at R$5.38.
In turn, the pound sterling is trading at US$1.06, a level not seen since 1985, following the announcement of a new tax package in the U.K., after trading at US$1.03 over the weekend.
“The main reason for the tensions in the foreign exchange market was the fiscal package announced in England, which reduces revenues for the country’s new government and keeps the fiscal policy in check,” said Ermínio Lucci, CEO of BGC Liquidez.
“There was a sell-off in English bonds, which also affected the currency.”
After the Bank of England (BoE) raised interest rates by 0.5 percentage points to 2.25% for the year last Thursday, new Prime Minister Liz Truss’ team announced a £45 (US$48) billion tax cut on Friday.
The announcement came on top of a £60 billion stimulus package to help pay household electricity bills.
At the same time, the BoE reiterated Monday that it is watching the fluctuations in the U.K. currency and “will not hesitate to change interest rates if necessary to bring inflation back to the 2% a year target.”
In August, prices in the country rose 9.9% year-on-year.
Due to stimulus measures combined with high inflation and a series of interest rate hikes, lower government revenues have put upward pressure on government bond yields, prompting investors to demand higher premiums to invest in them.