Sept. 26 (BP) — The value of Britain’s pound tumbled on Monday to its lowest point against the U.S. dollar since 1985, officials said.
The pound dropped 5% early Monday to $1.0327 as bond markets continued to demand rates in return for investor cash at levels last seen in 2008.
Last week, the Bank of England voted to raise interest rates over concern that the British economy might be entering a recession during a pervasive energy crisis that’s gripping most of Europe.
The news came on the same day that the Organization for Economic Co-operation and Development cut British growth forecasts, saying it believes Britain’s economy will grow slower than previously predicted this year.
The forecast was adjusted from the original 3.6% predicted growth by the end of 2022 to 3.4%, based on “declining real incomes and disruptions in energy markets,” the organization said, according to The Guardian.
The OECD said it believes the British economy will be flat in 2023.
“The poor situation in the U.K. exacerbates support for the USD, (which) can track higher again this week,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia, according to Sky News.
“If a sense of crisis about the world economy were to emerge, the USD could jump significantly.”
The euro took a step back on Monday as well, falling to a 20-year low against the U.S. dollar as concerns continued to grow over a global recession.
Earlier this month, an analysis by the Washington, D.C.-based Word Bank said rising interest rates and various market conditions around the world could lead to a global recession next year.
The organization said policy actions amid a string of financial crises in emerging markets and developing economies, along with central banks hiking interest rates to control inflation, could make the difference between a recession and no recession.