Pound Falls to Lowest Level Against Dollar Since Covid Pandemic Amid Economic Concerns

Strategic Insights -

The British economy is facing growing uncertainty, with the pound falling to its lowest level against the dollar since the onset of the Covid pandemic. The currency dropped by over a cent against the dollar to trade below $1.20 on foreign exchange markets, its lowest level since March 2020. This decline comes as the dollar strengthened to a fresh two-decade high in anticipation of the US Federal Reserve raising interest rates on Wednesday to tackle soaring inflation. The Fed last raised rates by 0.75 percentage points in 1994, and is expected to do so again, possibly by as much as 0.75 percentage points.

Key Takeaways:

  • The pound fell to its lowest level against the dollar since the Covid pandemic, trading below $1.20 on foreign exchange markets.
  • The currency also lost ground versus the euro, falling more than 1% to about 86.81p, its lowest level since May last year.
  • Analysts pointed to unexpectedly high US inflation figures and the prospect of a fresh Scottish independence referendum as contributing to the decline.
  • The UK unemployment rate unexpectedly rose to 3.8% in the three months to April, up from 3.7% in March.
  • City economists had forecast a decline to 3.6%, indicating a potential slowdown in the UK economy.
  • The Bank of England is expected to raise interest rates by 0.25 percentage points on Thursday, lifting its base rate to 1.25%.
  • The announcement by Nicola Sturgeon, Scotland's first minister, that she is preparing for a new Scottish independence referendum is also weighing on the currency.

Statistics:

  • The pound fell by over a cent against the dollar to trade below $1.20.
  • The currency fell more than 1% against the euro to about 86.81p.
  • Interest rates in the US are expected to rise by up to 0.75 percentage points.
  • The UK unemployment rate rose to 3.8% in the three months to April.
  • The Bank of England's base rate is expected to lift to 1.25%.
  • Scotland's first minister, Nicola Sturgeon, announced plans for a new Scottish independence referendum.

Sources:

  • Richard Partington, The Guardian
  • Simon Harvey, Monex Europe (as quoted in Reuters)
  • Daniel Sorabji/AFP/Getty Images (photograph credit)
  • US Federal Reserve (interest rate announcements)