The pound lost 0.83% to $1.1424 around 14:10 GMT (16:10 Paris) after falling to $1.1406, a level not seen in 37 years.
The pound tumbled to its lowest level against the dollar since 1985 on Wednesday, undermined by recession fears in the UK fueled by rising inflation, while the greenback is viewed as a safe haven.
In a sign of the magnitude of new Prime Minister Liz Truss’ task to revitalize the UK economy, the pound lost 0.83% to $1.1424 around 14:10 GMT (16:10 Paris), after falling to 1.1406 dollar had fallen. a level not seen in 37 years.
The surge in gas prices caused by the war in Ukraine threatens to plunge the UK into recession due to its dependence on this energy source.
For new Prime Minister Liz Truss, who is set to announce her plan to support the economy on Thursday, which could include a tariff freeze, “the balance between doing too much and doing too little” is precarious,” Francesco Pesole, analyst told Opposite AFP at ING.
On the one hand, “demand-side funding (lower taxes and higher public spending to offset rising household energy bills) in response to a supply shock raises fears of deteriorating UK finances,” said Western Union analyst Guillaume Dejean.
This makes UK assets less attractive, pushing up bond yields and weighing on the pound.
But the option of more limited action risks surging inflation in the UK. Bank of England chief economist Huw Pill said on Wednesday morning that price containment measures would lower inflation, prompting investors to expect a less significant rise in interest rates.
“This has triggered the pound’s decline” during the session, but “expect volatility, possibly in both directions, ahead of tomorrow’s (Thursday) announcements on energy,” warns Mr Pesole.
The pound is returning to its 1985 level, when it hit an all-time low of $1.0520 before the dollar’s strength, which crushed other currencies, prompted several countries to sign the Plaza Accords with the United States , who opted for an artificial devaluation of the greenback.
___ Yen intervention?
Other currencies were no better off against the dollar on Wednesday, with the yen falling 1.34% to 144.73 yen, down 20% in six months and after hitting a low since 1998 of 144.99 yen.
The Bank of Japan has been less eager than its peers around the world to tighten monetary policy, in part because inflation in Japan remains lower than in Europe or the United States.
“One member of the government has already said that the necessary measures should be taken to prevent the movement from continuing,” but without a tightening of the monetary policy outlook, the impact of artificially supporting the yen would be short-lived, Esther believes Reichelt, analyst at Commerzbank.
“Right now we are watching with concern what is happening, but if the ‘depreciation of the yen’ continues, it would be logical for us to act,” commented Japan’s Finance Minister Shunichi Suzuki, who declined to specify any action that might be taken.
The yen’s fall against the euro is clear: -1.47% to 143.54 yen, approaching the low for the year of 144.28 yen reached in June.
The euro is benefiting in part from monetary tightening by the European Central Bank (ECB), which is likely to decide to raise interest rates by 50 or 75 basis points on Thursday.
But the European currency rose a very measured 0.13% to $0.9917 and “even the ECB’s ultra-aggressive rhetoric tomorrow (Thursday) will struggle to restore a struggling euro against the dollar,” warns Han Tan, an analyst at Exinity .
The euro hit its lowest level since 1998 against the greenback at $0.9864 on Tuesday, weighed on by the risk of a recession in the euro zone caused by a halt to Russian gas supplies.
Wednesday classes Tuesday classes
14:10 GMT 21:00 GMT
EUR/USD 0.9917 0.9904
EUR/JPY 143.54 141.43
EUR/CHF 0.9755 0.9741
EUR/GBP 0.8681 0.8597
USD/JPY 144.73 142.80
USD/CHF 0.9836 0.9836
GBP/USD 1.1424 1.1520
#pound #lowest #weighed #uncertainty #economy