Pound slides to two-year low against the dollar

• Pound dropped below $1.19 on Tuesday for the first time since UK Covid shutdown in March 2020.
• A depreciating pound makes imports like food more expensive and raises the cost of gasoline.
• Additionally, it implies that British tourists who shop abroad get less for their money.

As energy prices continue to rise, the pound has dropped to a two-year low against the dollar, indicating speculators’ growing worries about a global recession.

Analysts noted that markets’ concerns about future UK economic development are another reason why the pound is weak.

Following predictions of economic stagnation and rising inflation, they added, the value of the pound might decline much more.

Following Tuesday’s declines, London equities gained some ground on Wednesday.

According to Jane Foley, head currency strategist at Rabobank, the departure of two senior government ministers on Tuesday evening—including former Chancellor Rishi Sunak—did not significantly contribute to the decline of the pound.

The market is far more focused on growth, and what would this administration do, she continued, so the announcement itself didn’t cause too many fresh problems.

The pound dropped below $1.19 on Tuesday for the first time since the first UK Covid shutdown went into effect in March 2020.

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A depreciating pound makes imports like food more expensive and raises the cost of gasoline at the pump. Additionally, it implies that British tourists who shop abroad get less for their money.

However, the prices of UK goods and services that are offered to international clients may decrease.

On Wednesday, markets in London and Europe surged, and some analysts claimed that this was a sign that the pound to dollar exchange rate was resetting to a lower level.

Following a roughly 3% decline on Tuesday, the FTSE 100 stock market in London increased by approximately 1% in morning trade on Wednesday.

Markets may have recovered some ground, according to Russ Mould, investment director at AJ Bell, on investor optimism that a proposed company tax increase for 2023 would be dropped.

He said that it’s also possible that equities were “oversold” on Tuesday.

Due to US interest rate increases and the perception of investors that it is a safe investment, the dollar is performing well.

Many people today are concerned about the recession, which is occurring in the US, Europe, as well as the UK, where there is a dilemma related to the cost of living, according to Ms. Foley.

The market is really concerned about the growth forecast in the UK, she explained, which is why sterling is still weak on its own despite the Bank of England raising interest rates five times in this cycle.

She warned that sterling might drop considerably lower. Investors are concerned about the UK labour shortage, which hasn’t returned to pre-pandemic levels “because we lost a lot of staff,” she said.

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