What Happened This Week: The Pound, The Dow, VIX And Even Meta React

 | Sep 24, 2022 07:55

Actions and reactions. That is one way to sum up the week that was in the markets, as events – both big and small – reverberated through Wall Street and beyond.

First, yesterday’s so-called “mini budget” brought down by U.K.’s new prime minister, Liz Truss, shook things up, causing the pound to take a dive. The pound sunk to below US$1.09 for the first time in more than 35 years. Investors sold off U.K. assets, while government bonds soared.

According to reports, Deutsche Bank’s head of foreign exchange, George Saravelos, said sterling was “in danger.”

“It is extremely unusual for a developed market currency to weaken at the same time as yields are rising sharply,” Saravelos was quoted in the Canadian-based Financial Post.

The aim of the government’s budget update is to cut taxes and curb household energy bills while simultaneously stimulating economic growth. Described as “the most sweeping tax cuts since 1972,” the move made big waves.

h2 Dow Heads Into Bear Territory/h2

The U.S. markets reacted to a number of factors this week, culminating Friday with the Dow Jones officially dropping into a bear market.

Before the close on Friday, the Dow Jones fell below 29,439.72, the threshold marking the first bear market since the first major COVID-induced plunge in early 2020. An index enters a bear market when it sheds 20% or more from a recent high. In the case of the Dow, it lost more than that since its peak in January of this year.

It edged up slightly by the closing bell to finish the day at 29,590.41, down 1.62% for the session.