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The Pound Sterling has been losing strength against the US Dollar amid fears of recession, its lowest levels in nearly four decades.
On Wednesday, September 7, the British Pound tanked to its lowest levels against the US Dollar (USD) since 1985. The Pound Sterling (GBP) dropped to a low of $1.15 in Wednesday’s trading session.
This is the lowest GBP has touched in nearly four decades as investors remain jittery over the UK’s economic outlook. The country has also been facing four-decade high inflation and major energy challenges ahead. In July 2022, the inflation numbers in the UK touched 10.1%.
On the other hand, the UK witnessed a major political shift this week with Liz Truss becoming the new Prime Minister succeeding Boris Johnson. In hours following her victory, the Sterling Pound dropped to $1.1444. Since then it has been heading lower as traders have been evaluating the potential economic impact of her appointment. Liz Truss is currently inheriting an economy that faces one of the worst cost-of-living crises in a generation.
The last time when Sterling dropped to a low of $1.14 was in March 2020 as well as during the Brexit outcome of 2016. The level of $1.15 was last seen in 1985 during Margaret Thatcher’s government.
As said, continuously soaring inflation has been putting constant pressure on UK’s economy. On the other hand, Europe is staring at a major energy crisis as Russia announced stopping Nord Stream 1 supply owing to Western sanctions.
With winter coming, the challenges could exacerbate further. The UK along with entire Europe is facing the possibility of a looming recession. The Liz Truss government is likely to boost borrowing while cutting taxes which has further added to U.K’s debt market concerns.
The Pound Sterling GBP Crisis
Major banking giant Deutsche Bank has warned of a major crisis brewing with the collapse of the Sterling Pound. In a note to investors, Deutsche Bank FX Strategist Shreyas Gopal said:
“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”.
Amid global recession fears, the US dollar continues to gain strength over other currencies, as the Fed looks toward aggressive interest rate hikes. The Sterling Pound is down more than 15% against the US Dollar. On Wednesday, the GBP also dropped by 1% against the Euro.