Pound sterling rallies as markets react to Liz Truss's resignation

Sterling could remain volatile, analysts warn, as currency finishes 0.45 per cent higher against the dollar on Thursday

Sterling shot up to $1.13 as markets anticipated that Britain's prime minister would step down. PA

Financial markets reacted positively to the announcement that Britain's Prime Minister Liz Truss was stepping down after only six weeks in the job, as the pound rallied on Thursday.

Before her resignation speech, sterling shot up to $1.13 as markets anticipated that Ms Truss would step down, before shedding gains slightly to stand 0.45 per cent higher at $1.127 when markets closed.

Yields on UK government bonds ― gilts ― have also eased slightly in response to the prime minister’s decision.

UK 30-year gilt yields, which fall as bond prices improve, fell back by 0.44 per cent to 3.86 per cent on Thursday.

By the end of the day, yields had edged back up slightly to 3.96 per cent.

Neil Wilson at markets.com said the pound’s “knee-jerk verdict was damning”, signalling that Ms Truss's move had been welcomed across the City.

He cautioned that sterling would remain volatile as traders digested what this meant for the UK government.

“But the initial reaction seemed very appropriate as the market has acted as judge, jury and executioner for the Truss regime," Mr Wilson said.

British Prime Minister Liz Truss resigns - in pictures

Liz Truss announces her resignation as UK Prime Minister outside 10 Downing Street in London. 'The National' looks at her brief time in power. PA

Chairman of the 1922 Committee Sir Graham Brady speaks to the media in London following Liz Truss's announcement of her resignation. Reuters

Liz Truss and her husband Hugh O'Leary walk back inside 10 Downing Street following her resignation statement. AFP

Liz Truss during Prime Minister's Questions in the House of Commons in London, addressing Parliament for the first time since abandoning her disastrous tax-slashing economic policies. AFP

Liz Truss speaks to Grant Shapps at Downing Street as he is appointed Home Secretary, after the resignation of Suella Braverman. Photo: Simon Dawson / No 10 Downing Street

A mural by artist Ciaran Gallagher in Belfast is updated to reflect Liz Truss's current political troubles. PA

Britain's new Chancellor of the Exchequer Jeremy Hunt announcing tax and spending measures at the House of Commons in London, with Liz Truss sitting on the bench behind him. AFP

Liz Truss gives a speech after sacking Kwasi Kwarteng as chancellor of the exchequer. Reuters

A protest by climate change group Extinction Rebellion in central London. Ms Truss has said the group is part of an 'anti-growth coalition' with trade unions and the main opposition Labour Party. AFP

Ms Truss has come under increasing pressure during her short time as prime minister. AFP

An Extinction Rebellion protest outside Downing Street on the day Mr Kwarteng was removed from the government. AP

Ms Truss with members of the England women's football team and the European Championship trophy in Teddington, south-west London. Getty

Ms Truss arrives for a meeting of the European Political Community at Prague Castle in the Czech Republic. AP

Ms Truss and her husband Hugh O'Leary wave after her keynote speech at the Conservative Party conference in Birmingham. AP

Liz Truss gives a speech at the Conservative Party Conference. EPA

Ms Truss meets with Mr Kwarteng, chancellor of the exchequer at the time. Photo: Andrew Parsons / CCHQ

Ms Truss and Mr Kwarteng visit a construction site for a medical innovation campus in Birmingham. AFP

Ms Truss meets US President Joe Biden for talks at the UN headquarters in New York. PA

Ms Truss delivers a speech at the 77th session of the General Assembly at the UN headquarters in New York. AP

The British prime minister holds a bilateral meeting with Turkish President Recep Tayyip Erdogan in New York. Reuters

Ms Truss meets French President Emmanuel Macron at the UN headquarters in New York. Reuters

Ms Truss speaks to the media during her visit to the Empire State building in New York. AP

Britain's new leader speaks during the state funeral of Queen Elizabeth at Westminster Abbey, London. PA

Ms Truss and her husband Hugh O'Leary observe a minute's silence at Number 10 Downing Street following the death of the queen. Reuters

Britain's Labour Party leader Sir Keir Starmer and Ms Truss leave after a service for the reception of Queen Elizabeth's coffin at Westminster Hall in the Palace of Westminster. AFP

Ms Truss joins the Speaker Lindsay Hoyle and selected MPs to take the oath and swear allegiance to King Charles III in the House of Commons chamber. PA

King Charles during his first audience with Ms Truss at Buckingham Palace, London, following the death of Queen Elizabeth. Getty Images

Ms Truss gives a reading during a service of prayer and reflection, following the passing of Queen Elizabeth, at St Paul's Cathedral in London. Getty Images

The British prime minister makes a statement outside 10 Downing Street in London following the queen's death. Bloomberg

Ms Truss speaking during her first weekly Prime Minister's Questions session at the House of Commons in London. AFP

Front pages of a selection of British national newspapers, each leading with a story about Ms Truss becoming Britain's new prime minister. AFP

People walk past an image in central London of Ms Truss on the side of a protest bus calling for a citizens' assembly. Reuters

Ms Truss holds her first Cabinet meeting at 10 Downing Street. Reuters

Ms Truss speaks at Downing Street on the day she took over as prime minister from Boris Johnson. EPA

Ms Truss poses with her husband Hugh O'Leary at Downing Street before entering as prime minister for the first time. EPA

Ms Truss is welcomed by staff in Downing Street as she enters the famous prime ministerial offices for the first time. Andrew Parsons / No 10 Downing Street

New Health Secretary Therese Coffey and Number 10 staff shelter from a downpour as they wait for Ms Truss to arrive in Downing Street. PA

Liz Truss makes a speech outside 10 Downing Street, London, after meeting Queen Elizabeth II and accepting her invitation to become prime minister and form a new government. PA

Queen Elizabeth II greets the newly elected leader of the Conservative Party, Ms Truss, at Balmoral Castle in Scotland. The queen invited Ms Truss to become prime minister and form a new government. Getty Images

It comes after the pound has suffered a tumultuous two months sparked by the market turmoil seen in the wake of former chancellor Kwasi Kwarteng’s mini-budget – at one stage sterling slumped to its lowest ever level against the US dollar.

A sell-off in gilts sparked by the market chaos also threatened to trigger a mini financial crisis in the UK at one stage, leaving some pension funds at risk of collapse and forcing the Bank of England to step in with emergency action late last month.

The FTSE 100 Index stood 0.1 per cent lower at 6,919.6 as the pound’s rally weighed on blue chips, in particular major UK exporters.

But by the end of the day it had jumped back into the green and was up 0.27 per cent at 6,943.9.

Liz Truss through the years - in pictures

British Prime Minister Liz Truss announces her resignation, outside No 10 Downing Street, London. AP

Liz Truss during Prime Minister's Questions in the House of Commons in London, addressing Parliament for the first time since abandoning her disastrous tax-slashing economic policies. AFP

Liz Truss walks off stage after delivering her keynote speech at the Conservative Party annual conference at the International Convention Centre in Birmingham in October. PA

Liz Truss meets US President Joe Biden during the 77th session of the United Nations General Assembly in New York in September. AP

King Charles during his first audience in September with Ms Truss at Buckingham Palace, London, following the death of Queen Elizabeth. Getty Images

Labour leader Keir Starmer and Liz Truss pay their respects after the service and procession for the coffin of Queen Elizabeth II into Westminster Hall, London, in September. PA

Ms Truss is welcomed by staff in Downing Street as she enters the famous prime ministerial offices for the first time in September. Photo: Andrew Parsons / No 10 Downing Street

Queen Elizabeth II greets the newly elected leader of the Conservative Party, Ms Truss, at Balmoral Castle in Scotland in September. The queen invited Ms Truss to become prime minister and form a new government. Getty Images

New Conservative Party leader and Britain's Prime Minister-elect Liz Truss delivers a speech after being announced the winner of the Tory Party leadership contest in central London on September 5, 2022. Ms Truss is the UK's third female prime minister following Theresa May and Margaret Thatcher. AFP

Liz Truss meets supporters as she arrives to attend a Conservative leadership election hustings at the NEC, Birmingham, in August. AP

Rishi Sunak and Liz Truss take part in the BBC Leadership debate at Victoria Hall in Hanley in July. Getty Images

Liz Truss playing pool during a visit to the Onside Future Youth Zone in London in August 2022. PA

Boris Johnson and Ms Truss arriving for an extraordinary summit at Nato headquarters in Brussels, in March 2022. AFP

Russian Foreign Minister Sergey Lavrov and Ms Truss arrive for talks in Moscow in February 2022. AP

Ms Truss in Red Square during a visit to Moscow in February 2022. Photo: No. 10, Downing Street

Ms Truss meeting European Commission vice-president Maros Sefcovic (not seen) for talks in central London on the Northern Ireland Protocol on 11th February 2022. PA

Ms Truss with Marise Payne, the Australian minister of foreign affairs, at Government House in Sydney, Australia, in January 2022. Photo: No. 10, Downing Street

Liz Truss hosts Vice President of the European Commission Maros Sefcovic at Chevening House in January 2022 to discuss the Northern Ireland protocol. Photo: No. 10, Downing Street

Ms Truss visits British troops in Estonia as they operate alongside other Nato troops in Tapa in November 2021. Photo: No. 10, Downing Street

Liz Truss walks through the old town in Tallinn, Estonia, in November 2021. Photo: No. 10, Downing Street

Ms Truss greeting Ukraine's President Volodymyr Zelenskyy at the Cop26 summit in Glasgow, in November 2021. PA

Ms Truss at the Red Fort in New Delhi during a trip to India in October 2021. Photo: No. 10, Downing Street

The British foreign secretary on the Plaza de la Constitucion in Mexico City, during a trip to Mexico in September 2021. Photo: No. 10, Downing Street

Queen Elizabeth II greeting Ms Truss at a reception for international business and investment leaders at Windsor Castle in October 2021. PA

Liz Truss with Antony Blinken, the US secretary of state, in New York, in September 2021. Photo: No. 10, Downing Street

Ms Truss on a morning jog over Brooklyn Bridge in New York in September 2021. Photo: No. 10, Downing Street

Former Chancellor Philip Hammond, centre, holding his red ministerial box outside 11, Downing Street, flanked by Treasury colleagues Ms Truss and Mel Stride in October 2018. PA

Ms Truss, then secretary of state for justice, being escorted around HMP Brixton by prison governor David Bamford in November 2016. PA

Ms Truss as she became the first woman ever to hold the role of Lord Chancellor, arriving at the Royal Courts of Justice before being installed in July 2016. PA

In April 2016, the former environment secretary Liz Truss listening to former chancellor of the exchequer George Osborne (not seen) during his speech at the National Composites Centre in Bristol. PA

When she was environment minister, Ms Truss visited the bridge over the River Wharfe in Tadcaster, which collapsed after heavy flooding in December 2015. Getty Images

Addressing the Conservative party conference in Birmingham in 2014 when she was secretary of state for environment, food and rural affairs. Getty Images

Mr Truss on the Sawnnington Farm to Fork stand at the Norfolk Food Festival at the Houses Of Parliament in October 2011. PA

Conservative Parliamentary candidate for South-West Norfolk Elizabeth Truss, while canvassing in the village of West Walton during the 2010 General Election campaign. PA

The former Conservative Shadow Home Secretary, Dominic Grieve, centre, speaking at the launch Reform's Lawful Society report on the nature of crime and the incentives in the criminal justice system while Ms Truss looks on, in September 2008. PA

Former Conservative Leader William Hague meeting conservative candidate for Calder valley Ms Truss, during the General Election Campaign for 2005. PA

Victoria Scholar, head of investment at Interactive Investor, a UK-based flat fee investment platform, said investors are welcoming “the potential for a more economically savvy, market-friendly leader”.

“There is still plenty of caution towards the UK as an investment destination given the ongoing political uncertainty, the growing risk of recession and Britain’s persistent inflation problem with price levels hovering at 40-year highs," she added.

“Focus among investors now shifts to the leadership election, the chancellor’s medium-term fiscal plan on 31st October and the Bank of England’s rate decision in early November.”