Whatâs Going On Here?The pound sterling fell to an all-time low versus the US dollar on Monday. What Does This Mean?Investors werenât impressed when the British government unveiled a package of tax cuts late last week â but anyone hoping theyâd do a U-turn over the weekend will have been sorely disappointed: since Friday, the government has doubled down on its stance and declared that thereâs even âmore to comeâ. That was not what most investors wanted to hear: many worry that the moves could make inflation worse â and with borrowing costs rising, the decision to take on even more debt is particularly risky. The result: investors flocked to the exits on Monday, sending the pound plunging nearly 5% versus the dollar, to trade as low as $1.035. Why Should I Care?For markets: Confidence falls further.
At first the pound made up much of its losses, but that wasnât because any good news broke. See, the currency looked so weak that it sparked rumors the Bank of England (BoE), which raised rates just last week, would have to take emergency action to stabilize it. So when the BoE announced late on Monday evening that it had no plans to make emergency hikes, the news hit the currency market with a thud: within minutes, the pound was in freefall once again, dropping a whole two cents against the dollar.
The bigger picture: Even more inflation.
When your currencyâs in free fall, itâs bad to be a net importer â that is, a country that imports more than it exports. Unfortunately thatâs exactly what the UK is â meaning that foreign goods will probably get more and more expensive for Brits. And âgoods getting more and more expensiveâ is a laymanâs way of saying â you guessed it â even more inflation. | 