Britain’s battered pound fell to its lowest level against the U.S. dollar since 1985 on Wednesday, lurching lower as investors dumped British assets in the face of a bleak economic outlook and the soaring dollar.
The British Pound has been hit hard by surging inflation, a looming recession and concerns that tax cuts and increased public spending under a new government could exacerbate price pressures.
The currency, down more than 15% against the dollar so far this year, is also a headache for the Bank of England since it increases the cost of imports and can cause more imported inflation.
It fell to as low as $1.1407, its lowest since 1985, according to Refinitiv data. It was last down 0.4% at $1.1475, clawing back some ground.
“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 may be more hawkish. There could be a recovery in sterling but I wouldn’t catch a falling knife for now,” said Nordea chief analyst Jan von Gerich.
Sterling hit an all-time low of $1.0545 in March 1985, just before G7 powers acted to rein in the super dollar of the Reagan era in the so-called “Plaza Accord”.
Against the euro, the pound was down 0.8% on Wednesday at 86.67, having fallen to its lowest since mid-June at around 86.89 pence.
In general, sterling has held up far better against the euro than against the dollar. It is down just 3% versus the single currency this year.
The pound had its worst month against the dollar in August, shortly after the Brexit referendum in 2016. Some British government bonds saw the biggest fall in their prices for decades.
Read also; Japanese Yen Falls to a 24-Year Low Against the Dollar as U.S. Yields March Higher.
