26 Sep 2022, 11:11

Pound hits record low versus dollar, markets drop on recession fears

HONG KONG, Sept 26, 2022 (BSS/AFP) - The pound hit a record low against the

dollar Monday on surging fears about the UK economy after the government
unveiled a huge tax-cutting budget.

The selloff came as most equity markets across Asia fell again owing to a
growing expectation that central bank interest rate hikes to fight runaway
inflation would lead to deep and painful recessions.

Officials in several countries including the United States, Britain,
Switzerland and Sweden unveiled more increases in the cost of borrowing.

The moves sent equity markets deep into the red again after officials
reiterated their focus on fighting inflation, even if that means causing a

But the biggest casualty of the week was the pound, which fell below $1.10
for the first time since 1985 as new finance minister Kwasi Kwarteng
announced his controversial mini-budget.

It then extended the losses Monday to an all-time low of $1.0350 in Asian
trade after he said he intended to unveil further reductions, despite his
budget causing ructions on London's markets.

It also fell to a two-year low against the euro, though the single currency
remains under pressure against the dollar, sitting at 2002 levels.

Now, observers are warning that the pound could fall to parity with the

Kwarteng, who was put in place by Liz Truss after she became prime minister
earlier this month, said he planned to slash taxes to kickstart the British
economy and provide cash to cushion families from rocketing energy costs.

But investors were spooked by the huge amount of borrowing likely needed for
the multibillion-pound package, which critics said would benefit the rich far
more during a cost-of-living crisis.

"Whether or not the UK government announcement of the biggest tax reduction
since 1972... will in time yield a significant growth dividend is not
something markets are yet willing to contemplate," said National Australia
Bank's Ray Attrill.

"Instead, they were consumed by worries over the scale of near-term UK
government financing needs, at a time when the current account deficit is
running at more than eight percent of GDP."

He added: "Chatter about a possible UK sovereign rating downgrade has already

And former US treasury secretary Lawrence Summer was scathing of Britain's
recent monetary policy decisions.

"It makes me very sorry to say, but I think the UK is behaving a bit like an
emerging market turning itself into a submerging market," he told Bloomberg
Television's Wall Street Week last week.

"Between Brexit, how far the Bank of England got behind the curve and now
these fiscal policies, I think Britain will be remembered for having
(pursued) the worst macroeconomic policies of any major country in a long

The collapse in sterling came as markets across the world are sent into a
spin by recession worries caused by a sharp tightening of monetary policy by
central banks fighting decades-high inflation.

The retreat in London was mirrored in Europe and New York, where the Dow hit
a two-year low, and Asia followed suit.

Tokyo shed two percent as traders there returned from a long weekend break,
while Sydney, Seoul, Singapore, Taipei and Jakarta also tanked.

But Hong Kong rose as traders welcomed news that the city had relaxed strict
hotel quarantine measures for travellers, providing a much-needed boost to
the embattled economy.

Macau casino stocks led the way as the city said it would accept Chinese tour
groups again from November, having been blocked during the pandemic.

Shanghai stocks also rose.

Oil prices edged up slightly, though barely made a dent in the big losses
suffered Friday as expectations that a recession is looming hammer demand

- Key figures at around 0230 GMT -

Pound/dollar: DOWN at 1.0570 from 1.0852 on Friday

Euro/pound: UP at 91.38 pence from 89.28 pence

Euro/dollar: DOWN at $ 0.9656 from 0.9695

Dollar/yen: UP at 143.82 yen from 143.31 yen

Hong Kong - Hang Seng Index: UP 0.2 percent at 17,970.69

Shanghai - Composite: UP 0.1 percent at 3,091.82

Tokyo - Nikkei 225: DOWN 2.0 percent at 26,619.53 (break)

West Texas Intermediate: UP 0.5 percent at $79.13 per barrel

Brent North Sea crude: UP 0.4 percent at $86.52 per barrel

New York - Dow: DOWN 1.6 percent at 29,590.41 (close)

London - FTSE 100: DOWN 2.0 percent at 7,018.60 (close)

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