Pound drops to its lowest level against dollar since COVID-19 pandemic

Pound drops to its lowest level against dollar since COVID-19 pandemic

by Pranali Mehta

The pound has reportedly dropped to its lowest level against the dollar since the coronavirus pandemic began, owing to mounting concerns about the British economy's strength.

According to reports, Sterling fell over a cent by the dollar on foreign exchange markets, trading below $1.20 for the very first time since March of 2020, as City traders responded to mixed employment market figures as well as the possibility of a new Scottish independence referendum.

The pound also lost value as the dollar rose to a new two-decade high in anticipation of the raising of interest rates by the US Federal Reserve by more than 0.75 percentage points on Wednesday to address surging inflation. The last time the Fed hiked rates by this much was in 1994.

The pound plunged more than 1% against the euro, to around 86.81p, its lowest point since May last year.

According to analysts, the sterling has been under pressure from a stronger dollar, as surprisingly high US inflation numbers fueled predictions for more vigorous rate hikes by the American central bank.

With the UK expected to finish towards the bottom of global growth league tables in the coming year, the Bank of England may be compelled to be more careful when setting interest rates on Thursday, even with inflation reaching its highest point since the early 1980s.

On Thursday, Threadneedle Street is projected to hike its base rate by 0.25 percentage points, bringing it to 1.25%.

The pound's latest slump follows an abrupt rise in the UK’s unemployment rate to 3.8% in the three months ending in April, rising from 3.7% in March. Economists in the city had predicted a drop to around 3.6%.

Against the backdrop of the bad news surrounding the currency's strength, analysts claimed that Nicola Sturgeon's statement on Tuesday that she had been planning for a second Scottish independence referendum was also putting pressure on the pound.

On Tuesday, Scotland's first minister stated that she will inform Holyrood about her plans on the Scottish independence soon.

Source credit: https://www.theguardian.com/uk-news/2022/jun/14/pound-falls-to-lowest-level-since-pandemic-crash

Pranali Mehta

A chemical engineer by qualification, Pranali Mehta dutifully walked down the slated path and worked in a chemical firm for a year. Her passion for writing however, pushed her into experimenting with the same as a career. With over three years of experience in content writ Read more...