British pound plunges to lowest level since 1985 against soaring US dollar

WHAT YOU NEED TO KNOW:

• The British pound plummeted to $1.1407 in Wednesday’s afternoon trade in London.
• This is the sterling’s lowest level against the US dollar in 37 years.
• New British Prime Minister Liz Truss inherits a struggling economy, with inflation hitting 10.1% in July.

The British pound on Wednesday fell to its lowest level against the U.S. dollar since 1985.

Sterling fell to $1.1407 in afternoon trade in London — a level not seen in 37 years — as investors responded to the U.K.’s darkening economic landscape with a new prime minister at the helm.

It was last seen trading down 0.4% at $1.1469.

New British Prime Minister Liz Truss, who succeeded Boris Johnson, inherits a struggling economy, with inflation hitting 10.1% in July and the worst cost-of-living crisis in a generation.

On Monday, the pound dropped to $1.1444 in the hours after she was proclaimed the new PM but it has since slipped lower as traders comprehend the fallout from her appointment.

The last time sterling briefly plummeted to $1.14 was in March 2020 and in 2016 after the Brexit result. The level of $1.1407 was last seen in 1985 when Margaret Thatcher was British prime minister.

The British pound has been hammered over recent months by surging inflation — currently at the highest level among all G-7 nations — and the prospects of a looming recession. The appointment of Truss, who is widely expected to cut taxes and boost borrowing, has added to U.K. debt market concerns.

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

“With the current account deficit already at record levels, sterling requires large capital inflows supported by improving investor confidence and falling inflation expectations. However, the opposite is happening,” Deutsche Bank FX Strategist Shreyas Gopal said in a note.

The sterling drop comes as the U.S. dollar has soared this year despite global recession fears and the Federal Reserve’s aggressive interest rate hikes. The sterling is currently down more than 15% against the dollar this year.

Source: Reuters