The battered British pound plunged to its lowest level since 1985 against the U.S. Dollar on Wednesday. This was due to investors selling off British assets amid a grim economic outlook and a rising dollar.
Sterling was hit hard by rising inflation and a looming economic recession. There are also concerns about tax cuts and increased spending under a new government, which could increase price pressures.
The Bank of England is having trouble with the currency’s drop of more than 15% against the US dollar this year. This increases import costs and can lead to more inflation.
It seems @KwasiKwarteng trying to calm investor jitters. Sterling dropped as much as 1% against the dollar to $1.1410 in afternoon trade in #London In 1985 – the last time the sterling-dollar exchange rate was this low https://t.co/rWqNqTlSdO
— Share_Talk ™ (@Share_Talk) September 7, 2022
According to Refinitiv data, it dropped to $1.1407 at 1401 GMT. This is its lowest level since 1985. It was at $1.1456 when it fell 0.5%.
In March 1985 Sterling fell to an all-time low of $1.0545, just before the G7 powers intervened in order to restrain the Reagan era’s superdollar in the so-called “Plaza Accord”.
The pound fell almost 1% against the euro on Wednesday, at 86.83. However, the sterling has performed better against the euro than the dollar. This year, it is only 3% lower than the single currency.
In August, the pound suffered its worst month since 2016, shortly after the Brexit referendum. The biggest drop in prices of British government bonds for decades was experienced by some.
Market turmoil is largely due to an inflation rate that is higher than the Group of Seven economies.
Analysts believe that the new economic plans of Liz Truss, the Prime Minister could influence the direction of the Pound.
Truss will be describing her plans to tackle soaring energy costs on Thursday, but she has ruled it out that she would impose new windfall taxes upon energy producers. The government will borrow money to pay for the freezing of energy bills for businesses and households.
