On her first full day on the job, UK Prime Minister Liz Truss was able to evoke the memory of Margaret Thatcher in at least one area- the exchange rate of the sterling dollar.
The pound fell 1 percent in Wednesday’s trading to $1.1406, the lowest since 1985, when the gear model was halfway through its 11-year tenure in power.
Then, as now, the recession was mostly a story of the dollar’s strength, but it also highlights the challenges the new British government faces as it battles double-digit inflation and warnings of a deep economic downturn.
“The markets seem to be enjoying the opportunity to hit the British pound,” said Valentin Marinov, head of currency research for the G10 at Credit Agricole in London.
while gears attended by She protests against Thatcher with her left-wing parents as a child, and nowadays regularly calls for comparisons to the UK’s first female prime minister, from the way she was Dresses to its policies. Gears the name of the thing Thatcher is the best leader of her party in the leadership hustle.
Economic concerns agenda, Which included pledges to review the Bank of England’s mandate and increase the budget deficit as the central bank raises interest rates, spurred the currency’s biggest decline since 2016 last month.
However, the pound remains stronger against the euro than it was during most of the Brexit negotiations as well as the global financial crisis, and rebounded from Wednesday’s losses to end the day little changed in New York.
UK taxpayers will be in trouble for up to 200 billion pounds ($230 billion) over the next 18 months to cover cost of Truss’ plans to contain energy prices, according to people familiar with the policy.
Meanwhile, some of her closest supporters are worried about her first transition to the position fix To be major mistakes, increasing the potential for political instability.
The last time the pound-dollar exchange rate was low, the world’s richest countries signed the Plaza Accord, an agreement to weaken the US currency.
The dollar is rising against the majors again, compounding the sterling slide and putting pressure on the central bank to keep pace with the pace of US interest rate hikes.
The expected blow to economic growth combined with a widening trade deficit weighs on the pound, which has weakened by about 15 per cent this year.
“Truss’ fiscal plans may help households, but maybe not the pound, and talk of the BoE is not helping,” said Roberto Cobo Garcia, head of G-10 currency strategy at BBVA in Madrid. “The global appetite for risk may need to improve in some way to stop the pound carnage.”
Meanwhile, Citigroup strategists Adam Beckett and Benjamin Nabarro advised clients on Wednesday to stay on sterling, writing that Truss’ plans to freeze energy bills were adding to market concerns about the country’s balance of payments situation.
“The current account is being eroded by higher energy prices and Brexit,” they said, as the domestic growth picture remains weak. “This is drying up capital account inflows at a time when the UK needs it most.”
State Street strategist Lee Viridge cited a similar line of reasoning for persistent sterling weakness.
On Wednesday, Verridge said on Bloomberg TV and Radio’s “Watch” that Truss’ plans “will increase the deficit and it will be huge.”
“You have a large current account deficit in the UK as well. You cannot have a double deficit of more than 10 per cent of GDP. This is not an evolving market scenario we are used to.”
– Assisted by James Hiray, Naomi Tajitsu, Lynne Thomason, Alice Gladhill, Mary Beckert and Syd Verma.
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