Sterling fell to its lowest level against the US dollar since 1985 on Wednesday. Sterling fell as low as $1.1407, its lowest level in 37 years, according to Refinitiv data. At the time of writing this article it was trading down almost 1% to $1.1407.
The pound has been affected by both the strong dollar and the deteriorating economic outlook for the UK.
The British currency has not reached this parity with the United States since the time when Margaret Thatcher was Prime Minister. As then, the economic outlook is challenging. Britain is grappling with the dual threat of double-digit inflation and the prospect of a long economic contraction. The Bank of England warns of more than a year of recession.
“Markets are apparently relishing the opportunity to hit sterling,” said Valentin Marinov, head of G10 currency research at Credit Agricole.
The last time the exchange rate between the British pound and the dollar was this low, the world’s richest nations signed the Plaza Agreement, an agreement to weaken the US currency. The dollar is soaring against majors again, compounding the pound’s slide and mounting pressure on the central bank to keep pace with US interest rate hikes.
The expected hit to economic growth combined with a widening trade deficit weighs on sterling, which has weakened more than 15% this year, posting its biggest drop since 2016 last month. The currency is also facing pressure from concerns about Prime Minister Liz Truss’s economic agenda. Plans to review the BOE’s mandate amid its toughest inflation challenge since gaining independence are causing more concern.
