The Last Time The British Pound Traded At These Levels Was 1985
The British pound hit not only a new 52-week low of $1.2720 on Tuesday but a new multi-decade low. In fact, the last time the British pound was trading at these levels Margaret Thatcher was barely halfway through her 11 year reign as Prime Minister.
The British pound has been under pressure since the infamous Brexit vote in late June. The currency flirted with the $1.35 level but failed to attract buyers given the country’s uncertain future and not part of the European Union.
Investors, traders, fund managers and businesses began heavily selling the British pound on Monday after the country’s Prime Minister, Theresa May, provided some clarity to the Brexit timeline.
May said that the country will officially began the separation process from the European Union in March of next year. However, she also suggested that access to the European Union as a single trading partner will end up being lower on the priority list than controlling immigration.
Investors, traders, fund managers and businesses took the Prime Minister’s words at face value and sold currency under the assumption that British businesses will lose access to the European Union. The country’s financial sector will also be heavily impacted as London’s bank has always been considered to be a gateway to the rest of Europe.
“The tone that Prime Minister May used has been uncompromising, and suggests the chance of a hard Brexit, leaving the EU without good trade terms in place,” Robert Wood, a U.K. economist at Bank of America Merrill Lynch told The Wall Street Journal. “That’s what sterling has been focusing on for the past two days.”
Even though the official process of leaving the European Union hasn’t even started yet, the damaging side effects to the economy are beginning to become evident. For instance, import prices to the country rose nearly 10 percent year-over-year in August and the weaker currency is driving up the prices of fuels and materials.
The Bank of England has already lowered its key interest rates to help support the economy but it has hinted that further cuts could be possible this year.
On the other hand, foreign investors have banked a strong profit just on the currency exchange alone. In fact, the country’s main stock index, the FTSE 100 index, has risen more than 10 percent since the Brexit vote and traded above the 7,000 level for the first time since 2015.