During the month of September, the pound sterling reached a record low against the dollar. This follows the government’s announcement of an unprecedented tax cut. Analysts said the government’s tax cut would lead to a rise in government bond issuance, which would pay for the lower tax. But a rapid rise in interest rates didn’t help sterling, which plunged to its lowest level in three years. The currency had been devalued by 25% overnight.
The pound’s value depends on a variety of factors, including the amount of savings and bank deposits in the U.K. The pound’s value is also affected by uncertainty over the government’s ability to handle the economy. The government has already suffered from weak growth and low inflation, and it has no easy solutions to rebuild its credibility.
The Bank of England, which is responsible for issuing the pound, was watching markets closely. The BoE said that it would not hesitate to raise interest rates if necessary. But a smaller-than-expected hike could compound the pound’s drop. It isn’t unusual for central banks to intervene in the currency market to stabilize it. But such interventions are never a good sign.
Investors have been scrambling to get out of sterling after its collapse and the rise of crypto currencies. The pound’s decline follows the rise of the dollar, which is the world’s largest currency. While the dollar’s valuation has soared to $18.5 trillion, the pound has fallen to its lowest level in more than three years. According to Bloomberg, the pound’s performance has been the worst among the major currencies. The pound’s decline also comes as the US Justice Department is looking into whether the FTX has been manipulated. It is reportedly in touch with the SEC.
There is no doubt that the pound has been undermined by the Brexit referendum and the UK government’s weak growth performance. But the pound’s decline also follows a surge in volatility in risk assets. The FTX, which is a popular benchmark for the pound, has been hit hard and the crypto contagion has hit the risk assets in particular.
A major factor contributing to the volatility is that investors’ confidence in the government’s ability to manage the economy has been shattered. The government is likely to announce a growth forecast on Monday. The Office for Budget Responsibility is also expected to release borrowing forecasts. This will cause volatility in the market and could lead to a BoE rate hike, which would inflame the currency market. If the government doesn’t have a clear plan to repair its credibility, investors are more likely to be forced to sell risky assets. This could mean the pound would drop to 95 cents to 96 cents until the government has a clear plan in place.
The British pound is the world’s oldest currency still in use. It started its journey in 1971. Since then, the currency has been used in a wide variety of ways. In October 1990, the British government decided to pair its currency with the Deutsche Mark. But after a series of currency crises, it was forced to withdraw from that pairing. The pound has been paired with a wide range of currencies, including the euro, the dollar, and gold.
