The escalating inflation, currently at the highest level among all G-7 nations, the impending recession, and concerns about tax cuts has been the driving factors pushing the Sterling down the slope.
On Wednesday, Great Britain’s pound plunged to its lowest level against the US dollar since 1985 as investors fled British assets in the face of a gloomy economic outlook coupled with the surging dollar.
The value of the pound sterling dropped as low as $1.135 at 8:50 in the morning in London, before rebounding slightly to $1.1378, a new 37-year low. The drop came after data showed a 1.6% decline in August retail sales, which some experts claimed indicated a “deteriorating consumption picture in the UK.”
The escalating inflation, currently at the highest level among all G-7 nations, the impending recession, and concerns about tax cuts has been the driving factors pushing the Sterling down the slope as experts now believe that an increase in government spending under a new administration would worsen pricing pressures.
The pound has lost more than 15% of its value versus the dollar so far this year, and this is also causing additional problems for the Bank of England since it increases the cost of imports and can cause more imported inflation.
As a result of concerns about economic growth, the anticipation of additional rate increases, and ongoing energy market volatility, European stock markets were trading down on Friday.
All sectors were down, and the Stoxx 600 index for all of Europe dropped 1%. Germany’s DAX declined 1.7%, France’s CAC 40 dropped 1.8%, and the UK’s FTSE 100 was unchanged.
Speaking on the current state of the pound last week, Nordea chief analyst Jan von Gerich stated, “For now, the momentum is very negative. I would expect that the moves have been so violent that the Bank of England won’t like this and maybe more hawkish.”
“There could be a recovery in sterling, but I wouldn’t catch a falling knife for now,” he added.
The largest losers in the morning trade as European stocks declined were the German energy firm Uniper and the United Kingdom’s Royal Mail. Royal Mail was down 10%, with postal service workers set to strike twice over salaries in the coming fortnight.
The last time the value of the pound dropped to $1.14 was briefly in March 2020 and after the 2016 Brexit result. The level of $1.1407 had not been seen since 1985, under Margaret Thatcher’s government.
Sterling hit an all-time low of $1.0545 in March 1985, shortly before the G7 countries passed the infamous “Plaza Accord” to control the super dollar of the Reagan era.
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