The British currency plunges to its lowest level against the dollar since 1985. The parity is now around 1.14 dollars for the pound and this decline is probably not over
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We are witnessing a general depreciation of currencies against the dollar. The euro is in no better shape, trading below parity with the greenback at $0.99. Not to mention the yen, the Japanese currency, which is also plunging. At this time, a period of crisis and strong economic and geopolitical tensions in Europe, the dollar is fully playing its role as a safe haven.
>> Euro-dollar parity: we explain why the European currency fell against the greenback
The British currency is in turn undermined by fears of recession in the United Kingdom due to inflation. The surge in gas prices caused by the war in Ukraine threatens to plunge the state into an infernal spiral due to its energy dependence, even more than France and other countries on the European continent. This attack on the pound sterling occurs when the new head of government arrives in London, in this case a new Prime Minister in the person of Liz Truss, who succeeds Boris Johnson.
Liz Truss is due to announce, Thursday, September 8, her plan to support the British economy with tax cuts and increased public spending. The markets fear a deterioration in the kingdom’s financial situation, making British assets less attractive to financial operators and explaining the loss of confidence in the pound sterling in favor of the dollar. Liz Truss would have appreciated a better reception for her coming to power.
The first impact concerns purchasing power. Everything imported into the UK is increasingly expensive. Great Britain mainly imports everyday consumer products and exports chemicals, pharmaceuticals and services (banking and financial). If everyday consumer products are more expensive, it is because they are imported in dollars. His Gracious Majesty’s subjects have not finished suffering the consequences.