Skip to content

The Pound Falls to Its Lowest Against the Dollar Since the Mid-80s

Amidst the chaos of the coronavirus impact, the Pound has fallen to its lowest level in decades. It has crashed against the USD and other foreign currencies after one of the worst runs in recent history.

The Full Details

The last time that GBP was this low against the USD, the UK’s first mobile phone network had just been launched and Neighbours had just debuted on Australian TV. It was back in 1985, with Ronald Reagan and Margaret Thatcher in charge that we last saw such a poorly-performing Pound.

At the time of writing, GBP/USD has sunk to under 1.16, having been below 1.15 at one point. This compares to the previous month’s high figure of 1.32. This dramatic fall came as panic entered the market and many traders sold Pounds, while the demand for Dollars remained strong. Sterling fell 4% on Wednesday and carried on dropping early on Thursday.

In terms of the GBP/EUR, we have seen this rate fall to its lowest level since 2009. It is trading at a little over 1.10. In this case, it seems that UK’s current account deficit is the main factor behind this situation.

What Has Happened?

The coronavirus outbreak has led to a surge in demand for USD, causing it to strengthen considerably against almost all of the other major currencies. With stock being sold by investors and oil prices plummeting, there is growing demand for Dollars.

As mentioned earlier, the country’s current account deficit is seen as a major factor in the Pound’s weakness. The UK imports far more that it exports. This isn’t generally regarded as being too important when the economy is strong and showing signs of growth.

In a crisis such as the one we are currently going through, this deficit becomes more apparent. As people all over the world look for cash, the value of GBP is more exposed than it normally would be.

Will Sterling Recover?

It was hoped that the “unprecedented” package of financial support recently announced would help the British economy get through this turbulent period. Prime Minister Boris Johnson and Chancellor Rishi Sunak guaranteed a huge amount of assistance for businesses.

The £330 billion in loans was designed to shore up the economy. With many businesses closing or severely restricted, the economy is under huge pressure. It is expected that international debt recovery queries will increase, as firms look to recover money they are owed.

In their press conference, Sunak even pointed out that further help will be made available if needed. Johnson stated that they had to act like a war-time government to get the country through this crisis.

They then announced tax breaks and other measures worth up to £20 billion. Hospitality, leisure and retail companies can ask for cash grants of up to £25,000 while even the smallest firms can ask for grants of £10,000.

Yet, none of these measures has helped to stem the tide. Sterling has steadied slightly at the time of writing, but many analysts believe that it still looks vulnerable to further drops as this financial crisis shows no sign of ending any time soon.