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The pound falls to its lowest level against the dollar since 1985

UK inflation is at its fastest pace since the early 1980s.

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The pound fell Wednesday to its lowest level against the US dollar since 1985.

The pound fell to $1.1407 in afternoon trading in London – a level not seen in 37 years – as investors reacted to the darkening economic landscape in the UK with a new Prime Minister at the helm.

It was last seen down 0.4% at $1.1469.

British Prime Minister Liz Truss was officially appointed on Tuesday after taking over from Boris Johnson in a hotly contested leadership race. It inherits an economy in the grip of its worst cost of living crisis in a generation, with inflation hitting 10.1% in July.

The pound fell to $1.1444 in the hours after his victory on Monday, but has since slipped lower as traders understand the fallout from his nomination.

The last time the pound fell to $1.14 was briefly in March 2020 and the result of Brexit in 2016. The $1.1407 level has not been seen since 1985, under the government of Margaret Thatcher.

The pound has been hammered in recent months by soaring inflation – currently at the highest level among any G-7 country – and the prospect of an impending recession. The appointment of Truss, who is expected to cut taxes and boost borrowing, added to worries in the UK debt market.

Sterling crisis risk

Deutsche Bank warned on Monday that the risks of a “sterling crisis” should not be underestimated, adding that investors would now closely await policy announcements from Truss, which are expected in the coming days.

“With the current account deficit already at record highs, the pound requires strong capital inflows supported by improving investor confidence and falling inflation expectations. However, the opposite is the case. happens,” Deutsche Bank FX strategist Shreyas Gopal 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 from the Federal Reserve. The British pound is currently down more than 15% against the greenback this year.

Against the euro, the pound also fell nearly 1% on Wednesday to 86.83. However, the pound sterling held up better against the single currency, losing only 3% over the year.

The lowest level for the British pound traded against the greenback was $1.052 on February 26, 1985, according to Refinitiv data.


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