The dollar is bringing the euro and the pound to their knees near their lowest levels in history

The British currency fell to $1.0863 for the first time since 1985, not far from an all-time high of $1.0520 recorded that year.

The dollar launched a fresh attack on the euro and pound on Friday, which was nearing its lowest levels in history after the UK unveiled budgetary measures that the market saw as very costly.

The pound fell to $1.0863 for the first time since 1985, not far from the all-time high of $1.0520 recorded that year. The British currency lost more than 7% in 10 days, a very rare move in the forex market.

Liz Truss’ new UK government unveiled a range of fiscal stimulus measures on Friday, notably covering part of households’ energy bills and forgoing a range of tax hikes.

The whole thing should force the UK to borrow a further £72bn in the markets, worrying operators.

“Between Brexit, the Bank of England’s delay in raising interest rates and now fiscal policy, I think the UK will go down in history as one of the worst macro deals by any major country in a long time,” former US Treasury Secretary Larry Summers said. who sees the pound potentially reaching parity with the dollar.

“The pound is at risk,” warned Deutsche Bank analyst George Saravelos, noting that the currency is falling even as lending rates on UK debt rise, “which is very rare in a developed economy.”

“We are concerned that investor confidence in the UK is eroding rapidly,” he added.

“The likelihood of more aggressive monetary tightening” by the Bank of England (BoE) “has risen, with UK” rates, which fell by more than half a point in two days for the 10-year loan, to their highest since inception 2011, commented Craig Erlam of Oanda.

“On the Road to Recession”

The situation is such that forex traders are now talking about the possibility of an emergency BoE meeting with the key to an expected rate hike, quoted by Wells Fargo’s Erik Nelson.

“It would send the wrong message to the markets,” warns DailyFX’s Christopher Vecchio, because these unscheduled meetings “mean the situation is very tense, dramatic.”

When it was particularly battered, it wasn’t just sterling that suffered on Friday. The euro fell to a new 20-year low at $0.9681 per euro.

The single currency is increasingly badly positioned against the greenback because of “growing concerns about the economic development of the old continent,” underlined Convera’s Joe Manimbo.

The S&P Global Flash PMI Index on Friday showed a further contraction in euro-zone economic activity in September to its lowest level in 20 months. For Joe Manimbo it is “a new step towards recession”.

Europe suffers from the comparison with the still strong US economy and the US Federal Reserve (Fed), which increased inflationary pressure again on Wednesday.

Friday’s violent movements “recall what happened at the beginning of the pandemic in 2020, when the world panicked at the thought of a global recession,” said Christopher Vecchio.

At that time, the market turmoil was so great that the Fed intervened massively to stabilize it. But this time, the analyst warns, she has no interest in acting.

“The Fed sees the strong dollar as a boon,” he argues. “To some extent, this helps protect the (US) economy from inflationary pressures.”

In terms of coordinated interventions by several countries in the foreign exchange market, “we have entered an era of deglobalization and competing interests, in which the political will to do something together has greatly diminished,” says Christopher Vecchio.

#dollar #bringing #euro #pound #knees #lowest #levels #history

Leave a Comment

Your email address will not be published.