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Pound hits record low against dollar on growing recession fears

Sterling slumped to a record low on Monday as investors piled in to dollars and out of almost everything else, spooked by the prospect of high interest rates and poor growth ahead (REUTERS)Premium
Sterling slumped to a record low on Monday as investors piled in to dollars and out of almost everything else, spooked by the prospect of high interest rates and poor growth ahead (REUTERS)

The pound plunged to a record low against the dollar Monday as traders grow increasingly fearful of a deep UK recession after new finance minister Kwasi Kwarteng unveiled a controversial tax-cutting mini-budget

The pound plunged more than 4.5% to a record low after Kwasi Kwarteng vowed to press on with more tax cuts, even as financial markets delivered a damning verdict on the new Chancellor of the Exchequer’s fiscal policies.

The selloff that followed the release on Friday of the government’s “Growth Plan" -- a budget in all but name and the biggest tax giveaway in half a century -- showed few signs of abating as markets entered a new week, heaping pressure on Prime Minister Liz Truss’s days-old administration.

The beleaguered pound fell to a record-low $1.0350 in Asia trading Monday. If the rout continues this week, it risks moving beyond a short-term embarrassment for the government into a more profound crisis that could force a rapid policy response. 

The pound plunged nearly 5% at one point to $1.0327, breaking below 1985 lows as confidence in Britain's economic management and assets evaporated. Even after stumbling back to $1.05, the currency is down 7% in two sessions.

"It's a case of shoot first and ask questions later, as far as UK assets are concerned," said National Australia Bank's head of currency strategy, Ray Attrill in Sydney.

The collapse sent the dollar higher broadly and it hit multi-year peaks on the Aussie, kiwi and yuan and a new 20-year top of $0.9528 per euro.

In stocks MSCI's broadest index of Asia-Pacific shares outside Japan was down 1% to a two-year low. It is heading for a monthly loss of 11%, the largest since March 2020. Japan's Nikkei fell 2.2%.

The dollar made new highs on sterling, the euro and the Aussie in the thin early hours of the Asia day. Sterling is down 11% this quarter.

 

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