Pound falls to lowest level against dollar since 1985

Inflation in the UK is happening at its fastest pace since the early 1980s.

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The British pound on Wednesday plummeted to its lowest level against the US dollar since 1985.

The pound fell to $1.1407 in London afternoon trade – a level not seen in 37 years – as investors reacted to the UK’s dark economic backdrop with a new prime minister in power.

It was last traded down 0.4% at $1.1469.

British Prime Minister Liz Truss is Officially appointed on Tuesday after succeeding Boris Johnson in a tight leadership contest. She inherited an economy in the midst of the worst cost of living crisis in a generation, with inflation hitting 10.1% in July.

The pound fell to $1.1444 in the hours following her win on Monday, but since then it has dropped lower as traders understand the debacle from her appointment .

The last time the pound fell to $1.14 was briefly in March 2020 and the Brexit outcome in 2016. The $1.1407 level hasn’t been seen since 1985, below the main government of Margaret Thatcher.

The pound has been depreciated in recent months as inflation rises – currently among the highest among all G-7 nations – and the prospect of a recession looms. The appointment of Truss, who is expected to cut taxes and boost borrowing, has added to concerns about Britain’s debt markets.

Possibility of a British Pound Crisis

Deutsche Bank warned Monday that The risks of a ‘pound crisis’ should not be underestimated.added that investors are currently awaiting Truss’ policy announcements, which are expected to take place in the coming days.

“With the current account deficit already at a record, the pound’s large capital inflow demand is supported by improving investor confidence and falling inflation expectations. However, the opposite is happening. out,” Shreyas Gopal, Deutsche Bank FX Strategist said in a note.

It comes as the US dollar has soared this year amid fears of a global recession and aggressive interest rate hikes by the Federal Reserve. Sterling is now down more than 15% against the greenback this year.

Against the euro, the pound also fell nearly 1% on Wednesday at 86.83. However, the pound has outperformed the single currency, falling only 3% on the year.

The sterling low traded against the greenback was $1.052 on February 26, 1985, according to Refinitiv data.

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