On Monday, the British pound hit a record low versus the US dollar as concerns over the viability of UK government finances grew.
After falling 3.6% on Friday, the pound fell nearly 5% to just around $1.03 on Monday during trading in Asia and Australia, leading to forecasts that the pound will soon fall to parity with the US dollar. As online traders from Europe arrived, it began to recover marginally and returned to $1.07.
Following British Chancellor of the Exchequer Kwasi Kwarteng’s Friday declaration that the United Kingdom would enact the largest tax cuts in 50 years while also increasing government borrowing and expenditure in the face of high inflation, the currency crisis has developed.
“Serious questions are already being asked about the economic competency of the new government,” said Craig Erlam, senior market analyst at Oanda. “So much so that markets are factoring in a strong chance of a substantial emergency rate hike from the Bank of England in order to shore up the currency and confidence in the markets.”
