Pound drops to a 37-year low as weak retail sales compound the economy’s problems.
Friday saw a new 37-year low for the pound against the dollar and a 19-month low against the euro as weaker-than-expected retail sales numbers increased concerns about the state of the British economy.
In terms of the dollar, the pound dropped more than 1% to $1.1351—its lowest level since 1985—and was most recently trading at $1.1403.
The majority of major currencies have been losing ground to the dollar in recent months; these trends received a boost this week as markets priced in an aggressive rate hike from the Federal Reserve at its policy meeting next week due to higher-than-anticipated U.S. inflation.
However, the euro has been rising and reached its highest level since February 2021 on Friday, reaching 87.71 pence, while the pound has been particularly struggling. At 87.49 pence, it was last up 0.39 percent.
The latest decline in the value of the pound came as statistics on Friday revealed that retail sales volumes fell 1.6% in monthly terms in August, the worst decline since December 2021 and worse than all predictions in a Reuters survey of experts, which had predicted a 0.5% decline.
The International Monetary Fund predicts that the British economy will see slower economic growth and more persistent inflation than any other major economy in 2019.
According to John Hardy, head of FX strategy at Saxobank, “the grinding backdrop of everything that’s going on is pushing on sterling, with the UK running these big external deficits and the risks around the new prime minister’s policies contributing to that.”
To lessen the economic blow of the war in Ukraine, Britain’s new leader, Liz Truss, proposed last week a two-year ceiling on consumer energy prices. The measures are expected to cost the nation upwards of 100 billion pounds ($115 billion).
This month, British Finance Minister Kwasi Kwarteng is scheduled to provide a fiscal statement in which he will outline how this will be paid for as well as how he plans to carry out the tax cuts Truss pledged during her run for the Conservative Party leadership.
On Thursday, FedEx Corp canceled the financial projection it had made just three months prior, sending its shares tumbling and straining the market as a whole.
A jam-packed week of central bank meetings will include the Bank of England’s meeting the following week. Market pricing suggests that a 75-basis-point increase has a little higher probability than a 50-basis-point increase.
