GBP/USD falls to record low

CNN Business

Sterling fell to a record low against the dollar on Monday amid growing concerns over the UK government’s fiscal stability.

almost plummeted The pair fell 5% to just over $1.03 in Asian and Australian trade on Monday, extending Friday’s 3.6% losses, sparking predictions that the pound could plummet to par with the dollar. It recovered slightly to $1.07 as European traders came online.

British Chancellor of the Exchequer Quasi Kwaten announced on Friday that Britain will implement the largest tax cut in 50 years, while increasing government borrowing and spending, sending the currency tumbling.

The new tax-cut fiscal measures, including scrapping plans to increase corporate tax and cut the top income tax rate, have been criticised by the opposition Labour Party as “trickle-down economics” and have even been slammed by members of the Prime Minister’s Office. own Conservative Party.

Kwarteng doubled down on the weekend, hinting at more tax cuts in a TV interview on Sunday, saying Friday’s measures were “just the beginning” as the government went all out to boost growth.

Former Conservative Prime Minister Lord Ken Clarke criticised the tax cuts on Sunday, saying they could cause the pound to collapse.

“I’m afraid it’s the kind of thing that Latin American countries usually try and it doesn’t work out,” Clark said in an interview with BBC Radio.

Sterling has been hit by a string of weak economic data and a sharp rise in the dollar, a safe-haven investment that sees inflows in uncertain times.

The euro also fell to a 20-year low after Giorgia Meloni’s victory in the Italian election.Investors are eyeing the most far-right government since the fascist era of Benito Mussolini, raising concerns about cohesion within the EU.

But with Britain’s economic outlook being the highest among the G7 nations and the government’s huge fiscal bet on growth, the pound has suffered more than most. It has lost nearly 21% so far this year, while the euro has lost 15%.

The all-time low for GBP/USD was 37 years ago on February 25, 1985, when 1 pound was worth just over $1.05.

“If the war in Ukraine escalates … we will see further sharp falls in the pound and the euro,” said Clifford Bennett, chief economist at Australian brokerage ACY Securities.

“One should not underestimate the current crisis across Europe, the pound is more vulnerable than most,” he said.

A surging dollar on Monday also sent major Asian currencies tumbling.

China’s yuan fell 0.5 percent to its weakest level in more than 28 months in the onshore market. The offshore yuan fell 0.4%.

Rapid decline prompts PBOC A 20% risk reserve requirement will be imposed on banks’ foreign currency forward sales to customers starting Wednesday. That should make it more expensive to buy foreign currency through derivatives, which could slow the pace of yuan depreciation.

Elsewhere in the region, the yen fell 0.6% to 144 against the dollar. On Thursday, the Bank of Japan intervened in currency markets for the first time since 1998 to support the yen at 145. The yen then rebounded slightly to intervene, but soon resumed its slide.

Asian stock markets are also U.S. stocks sold off on Friday and were volatile on Monday as recession fears mounted.

South Korea’s Kospi fell 2.7%, Japan’s Nikkei 225 (N225) fell 2.4% and Australia’s S&P/ASX 200 fell 1.4%. China’s Shanghai Composite fell 0.1%.

“The latest Fed policy actions and guidance have dealt a significant blow to risk sentiment,” DBS analysts said in a research note on Monday.

The Federal Reserve on Wednesday approved a third consecutive rate hike of 75 basis points in a bid to actively tackle white-hot inflation plaguing the U.S. economy.

Even without Fed action, Europe faces a recession due to the Ukraine war, while China faces “substantially weaker growth momentum” due to domestic factors, DBS analysts said.

“Combined with a sharp drop in dollar liquidity and a sharp rise in U.S. interest rates, the outlook for the world economy looks particularly volatile,” they added.

Correction: A previous version of this story incorrectly stated Friday’s drop in the pound.

Source link