The British Pound Plunges to a 37-Year Low

The British pound is getting clobbered today. The pound is currently plunged to a 37-year low today against the U.S. dollar. What’s happening is that financial markets are taking in the news of the large tax cuts that the government is planning. These could be the largest cuts in 50 years. At one point, the pound was below $1.04, and it fell to £1.12 versus the euro.

There seems to be a push-pull effect going on for the U.K. economy. The Bank of England is raising rates at the same time that the government is injecting stimulus. Larry Summers, the former Treasury Secretary, said, “The UK is behaving a bit like an emerging market turning itself into a submerging market.”

The British 10-year bond yield got to 4.15%. That’s double where it was six weeks ago. Summers said, “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Yikes!

For their part, the Chinese government isn’t willing to fight the dollar. The government let the dollar rise to 7-to-1 versus the renminbi. China’s central bank keeps a tight leash on their exchange rate.

The pound doesn’t appear to be impacting our markets very much. As I write this, the S&P 500 is up a little bit. Interestingly, the higher yielding areas of the market like utilities and REITs are down the most.

Posted by on September 26th, 2022 at 10:55 am


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