Hong Kong, China―The pound fell to a fresh 37-year low against the dollar Friday as traders grow increasingly worried about the economic outlook with central banks ramping up interest rates to fight runaway inflation.
Sterling fell as low as $1.1151―its weakest since early 1985―after the Bank of England on Thursday hiked borrowing costs by 50 basis points. That followed a three-quarter-point lift by the Federal Reserve on Wednesday and a warning of more to come.
The greenback also surged against the euro, with the single currency buying $0.9753, a new 20-year low.
While central banks around the world are hiking borrowing costs, the Fed has adopted a particularly hawkish position, with officials saying they will not back down until inflation―which is at four-decade highs―is tamed, even at the expense of the economy.
Traders are now looking to London, where new finance minister Kwasi Kwarteng is due to announce a mini-budget aimed at supporting households and businesses.
Kwarteng on Thursday said he would scrap a tax on salaries recently implemented by his predecessor Rishi Sunak―and will reveal the cost of the new government’s plan to cap energy bills for households and businesses.
It comes as the Bank of England warns that Britain is slipping into recession, as rocketing fuel and food prices take their toll.
Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, will deliver a budget package at 0830 GMT.
“Taxing our way to prosperity has never worked,” Kwarteng said Thursday after reversing a 1.25-percentage-point rise in National Insurance (NI).
“To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this,” the chancellor of the exchequer added.
Britain in April hiked the NI salary tax to help fund social care but this will be reversed in November.
Kwarteng is similarly expected to scrap a plan to increase tax on company profits that was signed off by Truss’s predecessor Boris Johnson.