The slide came as trading opened in Asia and Australia on Monday, extending a 2.6% dive from Friday – and predicted the pound could fall against the US dollar in the coming months.
The new tax-cutting fiscal measures, which include scrapping plans to raise corporate tax and capping bankers’ bonuses, have been criticized as “trickle-down economics” by opposition Labor and even harshly criticized by the chancellor’s own Conservative members. Party.
Former Tory chancellor Lord Ken Clarke criticized the tax cuts on Sunday, saying they would lead to a fall in the pound.
“I fear that in Latin American countries such an effort will not succeed,” Clarke told BBC radio.
The pound has been hit by a string of weak economic data, but the steep rise in the US dollar has made it a safe-haven investment that sees returns in uncertain times.
The euro also hit a 20-year low of 0.964 per dollar.
But the UK’s economic outlook means the pound suffers more than most as it faces a devastating energy crisis and high inflation among the G7 nations.
The British pound’s previous record high against the US dollar was at least 37 years ago on February 25, 1985 when 1 pound was $1.054.
“If the war in Ukraine escalates … we will see a sharper pullback in both the pound and the euro,” said Clifford Bennett, chief economist at Australian brokerage ACY Securities.
“One should not underestimate the crisis across Europe at the moment and the pound is more vulnerable than most,” he said.
Asian markets and currencies crack
A rising US dollar sent major Asian currencies lower on Monday.
China’s yuan fell 0.5% in offshore markets to a more than 28-month low. The offshore yuan fell 0.4%.
A rapid decline spurred the People’s Bank of China Banks will impose a risk reserve requirement of 20% on foreign exchange sales to customers from Wednesday. The move will make it more expensive for traders to buy foreign currencies through derivatives, which could slow the yuan’s decline.
The Korean won 1.6% against the greenback on Monday.
“Risk sentiments have been hit hard by the Fed’s recent policy action and guidance,” DBS analysts said in a research note on Monday.
Even without central bank action, Europe faces a slowdown due to the war in Ukraine, and China sees “significantly weaker growth” due to a variety of domestic factors, DBS analysts said.
“Added to that by a sharp decline in US dollar liquidity and a sharp rise in US interest rates, the global economic outlook looks particularly bleak,” they added.
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