Pound notes and coins at the checkout counter of a coffee shop in Manchester, England, September 21, 2018.File photo / Reuters
LONDON: The battered British pound fell to its lowest level since 1985 against the US dollar on Wednesday and plunged as investors sold British assets in the face of a gloomy economic outlook and a rising dollar.
The pound has been hit hard by soaring inflation, a looming recession and concerns that tax cuts and increased public spending under the new government could exacerbate price pressures.
A currency that has fallen more than 15% against the dollar so far this year is also a headache for the Bank of England as it could increase import costs and cause more import inflation.
It fell to $1.1407, the lowest since 1985, according to Refinitiv data. Last time he was down 0.4%, he was at $1.1475, making some recovery.
Jan von Gerich, chief analyst at Nordea, said: “Momentum is very bad so far. I expect that,” he said. “The pound could recover, but we won’t be able to catch the falling knife for now,” he added.
In March 1985, the pound hit an all-time low of $1.0545, just before the so-called “Plaza Accord” saw G7 powers try to curb the Reagan-era Superdollar.
The BoE is expected to hold a meeting next week and raise interest rates by 50 or 75 basis points.
Bank of England chief economist Hugh Pill said Britain’s sharp inflation could slow if new Prime Minister Liz Truss helped households and businesses cope with skyrocketing energy costs. .
Against the euro, the pound fell 0.8% to 86.67 on Wednesday, dropping to about 86.89 pence, its lowest since mid-June.
In general, the pound has held up much better against the euro than against the dollar. It’s down just 3% against the single currency this year.
The pound had its worst month against the dollar in August since shortly after the 2016 Brexit referendum. Some UK government bonds have recorded their biggest price drop in decades.
Much of the market turmoil is due to the highest inflation spike among the G7 countries.
Analysts said the sterling’s direction could be dictated by new truss economic plans, details of which will be announced in the coming days.
Truss is set to detail plans to tackle soaring energy bills on Thursday, but she ruled out imposing new contingent taxes on energy producers. Pick up tab for freezing energy bills.