(London) The dollar on Friday launched a new assault against the euro and the pound, which approached the lowest level in its history after the presentation, in the United Kingdom, of budgetary measures considered very costly by the market.
Updated yesterday at 2:37 p.m.
The pound fell to $1.0863 for the first time since 1985, not far from the all-time high recorded that year at $1.0520. The British currency lost more than 7% in ten days, a movement of a magnitude very rare in the foreign exchange market.
The new British government of Liz Truss unveiled a series of budgetary stimulus measures on Friday, which notably provide for the assumption of responsibility for part of the household energy bill and the renunciation of a series of tax increases.
The whole should force the United Kingdom to borrow an additional 72 billion pounds on the markets, which worries operators.
“Between Brexit, the Bank of England’s delay in raising rates and now fiscal policy, I think the UK will go down in history as one of the worst macro deals of a major country in a long time,” accused former US Treasury Secretary Larry Summers, who sees the pound potentially reaching parity with the dollar.
“The pound is in danger,” warned Deutsche Bank analyst George Saravelos, who noted that the currency is falling even as UK debt lending rates rise, “which is very rare in an economy. developed”.
“We are concerned that investor confidence in the UK is rapidly eroding,” he added.
“The likelihood of more aggressive monetary tightening” by the Bank of England (BoE) “has risen, with British” rates rising more than half a point in two days for borrowing at 10 years, the highest since early 2011, commented Craig Erlam of Oanda.
“Towards Recession”
The situation is such that currency traders are now talking about the possibility of an emergency meeting of the BoE, with the key to an anticipated rate hike, cited by Erik Nelson of Wells Fargo.
“It would send the wrong message to the markets,” warns Christopher Vecchio of DailyFX, because these unscheduled meetings “mean that the situation is very tense, dramatic. »
If it was particularly battered, the pound sterling was not the only one to suffer on Friday. The euro fell to a new low for 20 years, at 0.9681 dollar for one euro.
The single currency is increasingly badly positioned against the greenback, because “concerns are growing” about the economic trajectory of the Old Continent, underlined Joe Manimbo, of Convera.
The S&P Global Flash PMI index on Friday showed a further decline in economic activity in the euro zone in September, to its lowest level in 20 months. For Joe Manimbo, it is “a new step towards recession”.
Europe suffers from the comparison with the US economy, which remains strong, and with the US central bank (Fed), which again increased the pressure against inflation on Wednesday.
Friday’s brutal movements are “reminiscent of what happened at the start of the pandemic in 2020, when the world was panicking at the thought of a global recession”, considers Christopher Vecchio.
At the time, the dislocation of the markets was such that the Fed intervened massively to stabilize them. But this time, warns the analyst, she has no interest in acting.
“The Fed sees the strong dollar as a blessing,” he argues. “To some extent, this helps protect the (US) economy from inflationary pressures. »
As for a coordinated intervention between several countries in the foreign exchange market, “we have entered an era of de-globalisation, of competing interests, in which the political will to do something together has greatly diminished”, according to Christopher Vecchio.