Sterling fell to a new all-time low against the US dollar of $1,035 on Monday, falling more than 4%.
The drop came as trading in Asia and Australia opened on Monday, extending a 2.6% drop from Friday, and spurring predictions that the pound could sink to parity with the US dollar in coming months. The unprecedented currency decline follows British Chancellor of the Exchequer Kwasi Kwarteng’s announcement on Friday that the UK would impose the biggest tax cuts in 50 years while increasing spending.
“We have to unleash the power of the private sector,” Kwarteng said.
The new fiscal tax-cutting measures, which include scrapping plans to raise corporate tax and lowering the cap on bankers’ bonuses, have been criticized as “trickle down economics” by the opposition Labor Party and even criticized by members of the Chancellor’s own Conservative Party. party.
Former Tory Chancellor Lord Ken Clarke criticized the tax cuts on Sunday, saying it could lead to the collapse of the pound.
“I’m afraid that’s the kind of thing that is generally tried in Latin American countries without success,” Clarke said in an interview with BBC radio.
The pound has been hit by a string of weak economic data, but also by the sharp rise in the US dollar, a safe-haven investment that sees inflows in times of uncertainty.
But the economic outlook in the UK means the pound is suffering more than most, facing a disastrous energy crisis and the highest inflation among the G7 nations.
The previous all-time low for the British pound against the US dollar was 37 years ago, on February 25, 1985, when 1 pound was worth $1,054.
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