The British pound has fallen to its lowest level since 1985 against the U.S. dollar, reaching $1.1443 Monday before recovering to trade up slightly before noon London time, and investors are expecting sterling to weaken to points not seen in more than 200 years of trading between the two countries.
According to FactSet, the pound traded up by 0.1%, reports The Wall Street Journal, with the decline coming in part because of the rally of the U.S. dollar, which also has pushed the Japanese yen and the euro in recent days to lows not seen in decades.
The pound's decline also comes as economic woes in the United Kingdom grow, including skyrocketing energy prices expected this winter and uncertainty over what economic policies incoming Prime Minister Liz Truss will institute.
Truss, the British foreign minister, was declared Monday as the winner of the Conservative Party's race and will formally be named prime minister Tuesday. She has promised to cut taxes and introduce support policies to help households suffering from high energy prices and inflation.
Mark Dowding, chief investment officer of BlueBay Asset Management, commented that "the economic challenges facing the U.K. economy are probably of a magnitude as great as anything we've seen in living memory."
He added that the pound could fall to a 1-to-1 exchange rate, or parity, with the U.S. dollar during the next year. The lowest sterling has fallen is to $1.05 in 1985, and the pound has never fallen below the $1 exchange rate in the history of the currency's parings over the past 200 years.
The "very worst of scenarios" happened in 1976, when the United Kingdom was forced, because of a crisis with the pound, to seek a $3.9 billion loan from the International Monetary Fund, said Dowding.
Meanwhile, the pound dropped by 4.6% against the U.S. dollar in August, marking its worst monthly rate since October 2016.
Goldman Sachs is also warning that inflation in the United Kingdom could climb over 22% next year because of the costs of energy and that the economy will contract by 3.4% if that happens.
British energy bills are projected to skyrocket by 80% to an average of $4,188 a year, which could have a massive impact on the nation's businesses and households, according to a regulator's predictions.
Another increase is expected in January, with Russia's moves to block supplies to Europe expected to push wholesale gas prices to record highs, according to Ofgem CEO Jonathan Brearley.
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