Cryptocurrency

Cryptocurrencies at risk as new UK Prime Minister contends with economic challenges

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On September 5th, after almost three months of campaigning, Liz Truss was officially declared Britain’s new Prime Minister (PM). The deciding round was decided by a vote of party members, with Truss defeating rival Rishi Snack. 57.4% to 42.6%.

the next day front page Strewn with images of triumphant trusses. But rather than a happy occasion, the former foreign secretary is responsible for a cost-of-living crisis, double-digit inflation and a possible recession next year.

Additionally, the newly appointed prime minister has yet to articulate a digital asset policy, fueling fears that the government will shelve the country’s crypto hub ambitions under her leadership. Sunak, who was instrumental in promoting crypto-friendly policies during his tenure as CEO, will not be offered a role in Truss’ new cabinet.

Analyst Michael Spo Assuming the worst by tweeting, “Bye bye to the UK’s cryptocurrency hub,” the new prime minister will have to deal with the more pressing issues: tackling inflation and steering the economy during this difficult time. I hinted at what I was suggesting.

Pound continues to fall against dollar

The pound fell to a 37-year low against the dollar, reflecting the dire economic conditions facing the Truss and the UK economy.

Moreover, given the strength of the dollar’s momentum, the DXY is on track to retest all-time highs and analysts expect further weakness in the GBP.

GBP/USD pair
Source: TradingView.com

apart from truss The pound, which has vowed to “address the energy crisis”, has continued its decline against the dollar in the days leading up to her appointment.

bond market plunge

according to Reutersthe bond market has reacted to the truss appointment with a sharp drop in long-term bonds since the covid19 crisis erupted in March 2020.

The bond market is concerned about the size of Card’s bond issuance if Truss goes ahead with its plan to freeze the UK’s energy bill.Scheme is set to cost £150 billion ($171 billion), capping rising gas and electricity costs for homes and businesses.

Sanjay Raja, an economist at Deutsche Bank, said there were looming medium-term risks of higher inflationary pressures as these measures would be financed by more borrowing.

“Increased fiscal support should increase aggregate demand over the medium term, raise inflation and ultimately increase the amount of tightening the Bank of England needs to sustainably bring inflation back on target.”

In response, 2-year and 10-year UK government bond yields surged to multi-year highs of 2.9% and 3.0% respectively.

However, with inflation hovering at 10.1%, the possibility of further rate hikes by the Bank of England (BoE) will provide further impetus for yields to surge further. This ripple effect will hit riskier assets, including cryptocurrencies, harder.

2-Year Yield and 10-Year Yield
Source: TradingView.com

Analysts expect the BoE to hike rates by 50 basis points following its next policy meeting. September 15th.

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