British Pound Loses 1.1600 Base Against Dollar as Economic Woes Persist

The British pound (GBP) extended its decline against the dollar (USD) on Thursday as it fell to its lowest point since March 2020. This comes as clouds gather above the British economy.

The GBP breached the 1.1600 mark, falling as low as 1.1549 —COVID-19 pandemic period low — in the early London session today. At press time, the currency pair trades at 1.1560 or -0.50%.

The GBP/USD pair closed the August candle down by a massive -4.62%, its worst monthly decline since October 2016. The pair is also down by 14% in 2022 primarily due to worries over slowing growth in the UK as inflation blows hot.

Inflation in the UK tapped a four-decade high of 10% in July and is expected to go even higher in the near to medium term. The British government bonds also took a hit with the unraveling economy, suffering its biggest monthly fall since 1994.

Viraj Patel, a global macro strategist at London-based Vanda Research, noted that “It seems like a bit of a perfect storm now for the pound,” adding “there is this whole sell Europe, sell UK theme going on right now and it is getting quite extreme given the myriad of political and energy risks.”

Patel further explained:

“There’s also a Liz Truss risk premium starting to get priced in. Clearly, the market is not responding well to some of the policies Truss has announced, especially the funding of the twin deficit in the UK.”

British Pound at a 10-Week Low Against Euro

Liz Truss, the current foreign secretary of the UK, is the most likely to emerge as a replacement for Boris Johnson, who resigned in July.

Meanwhile, August was also the pound’s worst month against the euro (EUR) since May 2021. At press time, the EUR/GBP pair trades near a 10-week high of 0.8670.