British pound hits all-time low against US dollar


The British pound has hit an all-time low against the dollar after the bonanza of tax cuts and spending measures in Kwasi Kwarteng’s mini-budget threatened to undermine confidence in the UK, The Guardian reports.

The pound plunged nearly 5% at one point to $1.0327, its lowest since Britain 1971, as belief in the UK’s economic management and assets evaporated.

Even after stumbling back to $1.05, the currency was down 7% in two sessions, after the UK chancellor pledged over the weekend to pursue more tax cuts.

City economists and analysts have suggested the slump in the pound could force the Bank of England into an emergency interest rate rise to support the currency.

Paul Dales, the chief UK economist at Capital Economics, said the Bank could come out with “tough talk” supported by a large and immediate interest rate hike.

“That could involve something like a 100bps or 150bps hike in interest rates (to 3.25%/3.75%), perhaps as soon as this morning,” Dales told clients.

The shadow chancellor, Rachel Reeves, told Times Radio she was “incredibly worried” by the market reaction to the mini-budget.

As Asia-Pacific markets opened on Monday, Ray Attrill, National Australia Bank’s head of currency strategy, said: “It’s a case of shoot first and ask questions later, as far as UK assets are concerned.”

Marc Chandler, chief market strategist at Bannockburn Global Forex, called the currency’s record plunge “incredible” and said there was bound to be speculation of an emergency Bank of England meeting and rate hike.

Chris Weston, the head of research at the brokerage firm Pepperstone, said the pound was “the whipping boy” of the G10 foreign exchange market, while the UK bond market was “getting smoked” thanks to Kwarteng’s £45bn debt-financed tax-cutting package.

“Investors are searching out a response from the Bank of England. They’re saying this is not sustainable, when you’ve got deteriorating growth and a twin deficit.”

“The funding requirement needed to pay for the mini-budget means either we need to see far better growth or higher bond yields to incentive capital inflows,” Weston said.


Please enter your comment!
Please enter your name here