September 25, 2023

British Pounds Fall to All-Time Low, Market Under Siege

The British Pound has fallen by nearly 5% to its all-time low level and bonds also fell after the government said it would continue cutting taxes. It increased fears that the government’s policies will increase inflation and the debt index.

Pound Falling to Meet the Dollar

It has become the Pound’s biggest collapse since March 2020. It is reminiscent of the panic mode investors entered when COVID was beginning to rattle the global market. The latest move that dipped as low as $1.0350 increased the possibility of getting to a level of parity with the US Dollar to about 50% by the end of the year.

The latest currency crash was intensified by the comments from the Chancellor, Kwasi Kwarteng, on Sunday stating that there are more tax cuts to come. The fall has created a louder call for an aggressive interest rate increment from the Bank of England. A lot of analysts are calling for immediate actions to take place this week.

The increasing crisis of the cost of living is threatening the new administration of Liz Truss as Prime Minister with a lot of turmoil. Saxo Capital Market’s Jessica Amir said that the British Pound’s fall is showing that the market lacks confidence in the United Kingdom and the country’s finance is under siege. The Pound is not far from parity with the Dollar, and it will only get worse from this point, she said.

Although some participants in the Asian market say the sudden fall of the Pound could be a “flash crash,” the derivative market shows traders are getting ready for further collapse. In the options market, there is about a 50% possibility that the Pound would be at par with the Dollar this year.  

BOE Called to Step In

The Pound was 14% down on the day to the Dollar at $1.0710. the currency selloff started on Friday after the government released its growth roadmap. It contained the biggest tax cut in the century. Kwarteng cut off the high level of taxes and reduced basic interests by a percent while he equally reversed the increase initially introduced into the insurance payrolls.

He was quite undisturbed when he appeared on Sunday and delivered a comment that caused assets in the UK to collapse. He said he would not make comments on movements in the market but there is more to come regarding tax cuts.

Truss is like to encounter obstacles from Tory members in parliament against the tax cut policy if the Pound falls to be at par with the Dollar. But the market is already calling for the Bank of England to take action by raising rates. The spokesman of the Bank, however, refused to comment on the situation.

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