Pound reaches lowest point versus US dollar

Daily Currency Update

Major media outlets are focusing on the collapsing pound at the moment, as foreign exchange hits major headlines across the UK. The pound is now at its lowest point versus the US dollar ever. On Monday, we saw the currency pair hit 1.0350 briefly, as ongoing concerns around inflation and policymakers’ ability to control it take centre stage. The real life consequence of the record lows can be seen by the reaction of mortgage lenders with Halifax (the UK's largest mortgage provider) having now withdrawn lending products in order to reprice due to the market volatility and the uncertainty caused by the mini-budget implemented last week by Kwasi Kwarteng.

Focus now moves to what fiscal and monetary policy changes the UK has at its disposal. Whether the Bank of England now implements an emergency interest rate hike, or the UK government is forced to go to the IMF to request a Flexible Credit Line, is yet to be seen. There is even talks of potential Capital Controls, something which Russia recently employed to control the crumbling Rouble recently. There is also the potential option of the UK central bank intervening in the FX markets to artificially prop up the pound. As a net importing nation, a pound this weak is incredibly damaging for UK businesses, many of whom import from the likes of Europe and the Far East. Businesses have already been hit very hard by increasing energy costs and increasing supply chain costs since Covid.

There are many analysts in the market calling for the pound to fall further and there are talks of a 'run on sterling' and sterling based assets, which could send the pair below parity, though the markets will be now watching for close signs on what the UK government and Bank of England will do to support the ailing currency. This could instead provide much needed support in the coming days.