The pound continued its recovery on Friday with GBP/USD returning to pre-pandemic levels as markets looked forward to dramatic rate hikes from the Bank of England.
There has been a general improvement in UK assets on Friday with the FTSE 100 gaining and bond yields falling.
However, analysts warned the respite from this week’s volatility may only be short lived.
“The pound may have returned to the levels it was at when Chancellor Kwasi Kwarteng stood to address MPs a week ago but that doesn’t mean we’ve miraculously returned to a pre-mini-Budget world,” said AJ Bell investment director, Russ Mould.
“The currency’s recovery is predicated on more rapid and aggressive rate hiking from the Bank of England with all the implications that has for borrowers and, in particular, anyone with a mortgage.”
Despite the backdrop of worsening economic conditions, traders were positioning for a possible U-turn by the government on some of their measures which would be a welcome boost sentiment.
There is growing pressure on the PM from her backbenchers to remove the Chancellor and pedal back on his mini-budget package.
GBP/USD was 1% higher at 1.2223 at the time of writing, around 900 pips above the lows of the week.