The struggling British pound fell to its lowest level against the dollar since 1985 yesterday, falling lower as investors dumped British assets amid a gloomy economic outlook and a strengthening dollar.
Terling has been hit hard by rising inflation, a looming recession and fears that tax cuts and higher public spending under a new government could exacerbate price pressures.
The currency, which is down more than 15 percent against the dollar so far this year, is also a headache for the Bank of England as it increases import costs and may cause more imported inflation.
It fell as low as $1.1407, its lowest level since 1985. It was last down 0.4 percent at $1.1475, gaining some ground.
“At the moment the dynamic is very negative. I would expect the moves to have been so violent that the Bank of England will not like this and may become more hawkish,” said Nordea chief analyst Jan von Gerich.
“There could be a recovery in sterling but I wouldn’t catch a falling knife for now,” he added.
Sterling hit an all-time low of $1.0545 in March 1985, just before the G7 powers acted to rein in the Reagan-era superdollar in the so-called “Plaza Accord”.
The bank meets next week and is expected to raise interest rates by 50 or even 75 basis points.
Soaring inflation in Britain could slow if new Prime Minister Liz Truss helps households and businesses cope with soaring energy costs, but it’s too early to say what that will mean for interest rates, the chief economist said of the Bank of England, Huw Pill said lawmakers at a hearing.
Against the euro, the pound fell 0.8 percent to 86.67 on Wednesday after falling to its lowest level since mid-June at around 86.89 pence.
In general, the pound has held up far better against the euro than it has against the dollar. It’s down just 3 percent against the single currency this year.
The pound had its worst month against the dollar in August since shortly after the Brexit referendum in 2016.
https://www.independent.ie/business/world/british-pound-plummets-as-new-prime-minister-liz-truss-takes-office-41970115.html The British pound plummets as new Prime Minister Liz Truss takes office