The British pound fell to its lowest level against the dollar

CNN Business
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The British pound crash to a record low against the US dollar on Monday as concerns about the stability of the British government’s public finances increased.

landing nearly The 5% came in to just over $1.03 during trade in Asia and Australia on Monday and extended its 3.6% slide from Friday, spurring expectations that the pound could fall to par with the US dollar. It recovered slightly as European traders came online, and rose again to $1.07.

The coin drop After British Chancellor of the Exchequer Kwasi Quarting announced on Friday that the UK will implement the largest tax cuts in 50 years at the same time as boosting government borrowing and spending in the face of high inflation.

“Serious questions are already being asked about the economic efficiency of the new government,” said Craig Erlam, chief market analyst at Oanda. “So much so that markets are considering a strong opportunity for an emergency rate hike from the Bank of England in order to support the currency and confidence in the markets.”

New fiscal measures to cut taxes, which include scrapping plans to raise corporate tax and lowering the higher rate of income tax, have been criticized as “swinging economies” by the opposition Labor Party, and even members of the chancellor. Your Conservative Party.

Kwarteng doubled down on the weekend, hinting in Sunday TV interviews of more tax cuts to come, saying Friday’s measures were “just the beginning” as the government does everything it can to drive growth.

Former Conservative chancellor Lord Ken Clark criticized the tax cuts on Sunday, saying they could lead to a crash in the pound.

“I’m afraid this is something that is usually tried in Latin American countries without success,” Clark said in an interview with BBC Radio.

The British pound was affected by a series of weak economic data, but also the sharp rise of the US dollar, which is a safe investment that sees inflows in times of uncertainty.

The euro also hit a 20-year low after Giorgia Meloni declared victory in Italy’s general election. Investors are watching what could be the most far-right government since the fascist era of Benito Mussolini, which has raised concerns about cohesion within the European Union.

But the pound is suffering the most because of the economic outlook in the United Kingdom, which faces the highest inflation rate among the Group of Seven nations, and the government’s massive fiscal bet on growth. It has lost nearly 21% so far this year, compared to a drop of 15% in the euro.

The previous record low of the British pound against the US dollar was 37 years ago on February 25, 1985, when one pound was just over $1.05.

“If there is any escalation of the war in Ukraine … we will see a further sharp drop in the pound as well as the euro,” said Clifford Bennett, chief economist at ACY Securities, an Australian brokerage.

“No one should underestimate the crisis that is plaguing all of Europe at the moment, and the British pound is more vulnerable than most other countries,” he said.

The US dollar’s rally also dragged the major Asian currencies lower on Monday.

The Chinese yuan fell 0.5% in the internal market to its lowest level in more than 28 months. The offshore yuan fell 0.4%.

Rapid declines prompted the People’s Bank of China to A 20% risk reserve has been imposed on banks’ foreign exchange forward sales to customers as of Wednesday. This would make it more expensive to buy foreign currencies via derivatives, which could slow the yuan’s decline.

Elsewhere in the region, the Japanese yen fell 0.6% against the dollar to 144. Last Thursday, the Bank of Japan intervened in the currency market For the first time since 1998 to support the yen when it reached 145. The yen rebounded slightly after the intervention, but soon resumed its slide.

Stock markets in Asia were also in turmoil on Monday, after US stocks sold out on friday With growing fears of a recession.

South Korea’s Kospi fell 2.7%, and Japan’s Nikkei 225 index

(N225) It fell 2.4%, and the Australian S&P/ASX 200 index fell 1.4%. In Europe, the FTSE 100 Index in London

(UKX) The index was the weakest, but the German DAX

(Dax) The French CAC index also fell. Italian stocks got a boost after falling last week ahead of the elections.

Federal Reserve on Wednesday Approved the third consecutive rise of 75 basis points In a strong step to address the severe inflation that the US economy is suffering from.

DBS analysts said that even without the Fed’s action, Europe is facing a recession due to the war in Ukraine, and China is eyeing “largely weak growth dynamics” due to domestic factors.

“In addition to the sharp drop in US dollar liquidity and sharply higher US interest rates, the global economic outlook looks especially precarious,” they added.

– Julia Horowitz contributed to this article.