Pound falls to 37-year low on Black Wednesday anniversary

Pound banknotes are seen in this illustration taken March 1, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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LONDON, Sept 16 (Reuters) – The pound sterling marked the 30th anniversary of “Black Wednesday” by falling to a new 37-year low against the U.S. dollar on Friday and a 19-month low against the euro, after to have been lower than expected. retail sales figures heightened fears about the UK economy.

The pound fell more than 1% against the dollar to $1.1351, its lowest since 1985, and last traded at $1.1404.

Most major currencies have struggled against the dollar in recent months, and the greenback got another leg up this week after higher-than-expected U.S. inflation prompted markets to price another big rise. Federal Reserve rates next week. Read more

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The pound suffered particularly badly, however, and the euro hit 87.71 pence on Friday, its highest level since February 2021. It was up 0.39% at 87.45 pence.

On September 16, 1992, Britain withdrew from the Exchange Rate Mechanism – a system designed to reduce currency fluctuations before the launch of the Euro – causing a sharp devaluation of the pound.

The day, now known as Black Wednesday, saw sterling fall 4.3% to end the day at $1.778, well above today’s level.

Friday’s drop followed data showing retail sales volumes fell 1.6% in monthly terms in August – the biggest drop since December 2021 and worse than any forecast in a Reuters poll of economists who had indicated a drop of 0.5%. Read more

It was just the latest bad news for Britain’s economy, which faces slower economic growth and more persistent inflation than any other major economy next year, according to forecasts from the International Monetary Fund.

“The overwhelming backdrop of all that is happening is weighing on the pound, with the UK running these huge external deficits and the risks from the new Prime Minister’s policies on top of that,” said John Hardy, chief executive. of FX strategy at Saxobank.

Britain’s new leader Liz Truss last week announced a cap on soaring consumer energy bills for two years to cushion the economic blow of war in Ukraine with measures likely to cost the country more than £100 billion pounds ($115 billion). Read more

UK Finance Minister Kwasi Kwarteng is due to make a budget statement on September 23 explaining how this will be funded, and is also expected to say how he will deliver the tax cuts promised by Truss during his Conservative Party leadership campaign. Read more

“Furthermore, markets are ‘at risk’ following Fedex’s withdrawal from its guidance and US equities are falling below a key support level. In a risky environment, the pound is like a worse euro,” Foley said.

FedEx Corp on Thursday withdrew the financial forecast published just three months ago, sending its shares plunging and weighing on markets more broadly. Read more

The Bank of England will meet next week, part of a busy week of central bank meetings. Market prices indicate a slightly higher probability of a 75 basis point rise than a 50 basis point jump. 0#BOWATCH

“Given that the (European Central Bank) has risen 75 basis points, as has the Bank of Canada and the Fed and possibly the (Swiss National Bank), there is certainly a risk that a 50 basis points is fueling further GBP selling,” MUFG said in a note.

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Editing by Sherry Jacob-Phillips and Toby Chopra

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