The British pound slid to its lowest level against the U.S. dollar since 1985!
A mere reflection of the U.K.’s dire economic situation.
Investors are braced for sterling to weaken even further to a nadir not seen in more than two centuries of trading across the Atlantic.
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British Pound Falls to Lowest Level Since 1985!
— The_Journalbiz (@the_journalbiz) September 5, 2022
Sterling’s decline is in part a side effect of the U.S. dollar rally, though homegrown factors have compounded the pound’s weakness.
- The pound fell as low as $1.1443, the lowest level since 1985, according to FactSet
Sterling’s descent is in part a side effect of the relentless U.S. dollar rally, which has driven both the euro and Japanese yen to multidecade lows in recent days.
The U.K. faces an energy crunch that threatens to leave many households unable to pay their bills this winter. Uncertainty over both the economic policies the U.K.’s next prime minister will enact and the Bank of England’s ability to control sky-high inflation are compounding the pound’s weakness.
“The economic challenges facing the U.K. economy are probably of a magnitude as great as anything we’ve seen in living memory,” said Mark Dowding, chief investment officer of BlueBay Asset Management.
Goldman Sachs warned U.K. inflation could top 22% next year amid spiraling energy costs, one of the starkest projections so far.
The bank estimates the U.K. economy would contract 3.4% in that scenario.
Mr. Dowding thinks the pound could fall to parity, or a 1-to-1 exchange rate, with the U.S. dollar in the next year. The pound has never been worth less than $1 in the more than 200-year history of the currency pair
- The British pound was once the world’s pre-eminent currency.
But the pound’s worth has been on a steady decline over the past century, coinciding with the erosion of its status as the main currency in global trade and central bank reserves.
The pound fell 4.6% against the dollar in August, its worst month since October 2016.
Image: British pound