The pound hit a record low against the dollar on Monday on surging fears about the UK economy after the government unveiled a huge tax-cutting budget.

Anurag Sharma
Anurag Sharma

Updated · Sep 26, 2022

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Due to growing expectations that central banks would raise interest rates to combat runaway inflation, the selloff took place as Asian equity markets fell again. Officials from several countries, including the United States of America, Britain, Switzerland, and Sweden, announced further increases in borrowing costs. These moves sent equity market prices into the red once again, after officials in several countries including the United States, Britain and Switzerland announced more increases in borrowing costs.

The pound fell below $1.10 on Monday, marking the worst loss since 1985. Kwasi Kwarteng was appointed finance minister. The losses were further extended to $1.0350 in Asian trading on Monday by Kwasi Kwarteng, who said that he would announce more reductions even though his budget caused ructions on London’s stock markets. It also fell to a 2-year low against euro, but the single currency still faces pressure against the dollar at 2002 levels.

Now, some observers fear that the pound will fall to parity in value with the greenback. Kwarteng, who was appointed by Liz Truss earlier this month as prime minister, stated that he intended to cut taxes in order to jumpstart the British economy, and to provide cash to help families cope with rising energy prices. However, investors were alarmed by the massive amount of borrowing that would be required to finance the multibillion pound package. This was criticized as a benefit for the wealthy in times of high living costs.

Ray Attrill of National Australia Bank stated, “Whether or not this UK government announcement about the biggest tax cuts since 1972… will in the time yield a significant dividend is not something that markets are yet willing and able to contemplate.” “Instead, they were consumed in worrying about the near-term UK government funding needs at a time where the current account deficit is running above eight per cent GDP.” Lawrence Summer, the former US Treasury Secretary, was harsh on Britain’s recent financial policy decisions. He stated that the UK behaves a lot like an emergent market becoming a submerging one.

“Between Brexit, the Bank of England’s failure to keep up with the curve and these fiscal policies, I believe Britain will be remembered for having (pursued), one of the worst macroeconomic policy of any major country in a very long time.” The crisis in sterling occurred as markets around the world were thrown into turmoil by worries about recession caused by tightening of monetary policy. This was in response to high inflation over the past decades. The Dow fell to its lowest level in two years in New York City and Europe.

Tokyo saw a 2pc drop in traders returning from a weekend vacation. Sydney, Taipei Taipei and Seoul also fell. Hong Kong rose after traders were happy to hear that the city had relaxed strict hotel quarantine rules for tourists, giving a much-needed boost in the struggling economy. Macau casino stocks were the first to rise after the city stated that it would again accept Chinese tour groups starting in November. This was after being blocked by the pandemic. Shanghai stocks also rose. The oil prices edged up slightly but barely made any dent in Friday’s big losses due to fears of a recession.

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Anurag Sharma

Anurag Sharma

He has been helping in business of varied scales, with key strategic decisions. He is a specialist in healthcare, medical devices, and life-science, and has accurately predicted the trends in the market. Anurag is a fervent traveller, and is passionate in exploring untouched places and locations. In his free time, he loves to introspect and plan ahead.