Tuesday, July 23

British currency weakens as inflation rises

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The British currency shows a serious drop

The British currency is experiencing its worst period since 2016. Its position against the dollar continues to decline, the pound is also weakening against the euro.
The reason for this situation was the performance of the British economy, which demonstrates a slowdown in growth. Against the background of global and domestic inflation, such processes have caused fears among investors, and they began to actively get rid of the pound.
Last month the British currency fell by 4.4% against the dollar to $1.16 per pound. As for the value of the euro, it dropped by 2.2% to 82.8 pence, which is the lowest value since spring 2021. At the same time, the European currency is not doing well either. The market is experiencing volatility due to higher gas prices and concerns about shortages for the winter.
Inflation in the UK has reached 10% and, according to experts, will continue to rise. All this affects consumers, whose budgets are shrinking and the prices of products and services are rising. Government bonds are at risk of a serious drop in a month, comparable to the collapse in 1994. Investors who are massively selling securities are contributing to this.

The British currency is weakening

Scotiabank expert believes that the current processes lead to the fact that the Central Bank of England will increase interest rates. It is expected that in 2023, their size can reach 4.25%. For comparison, now the rates are at 1.75%. Thus, the Bank of England’s interest rate will be the largest among the world’s strongest economies. However, this decision will not be able to fully compensate investors for the losses they incurred as a result of inflation. The British economy is in recession, and it is difficult to say yet when it will start to recover.
In addition, the pound depends on the processes in the stock market, and so far the segment is quite weak. As a result of interest rate hikes by the regulators of the world’s largest economies, the stock market is showing instability.
UBS Global Wealth Management has published its forecast for the British currency. According to it, the pound will cost $1.12. At the same time, American money will gradually strengthen against the background of the new policy of FRS.
Changes in the government of the kingdom also influence the pound’s value. The new prime minister is committed to implementing tough measures against the state financial system. It is expected that in the near future there will be a fiscal stimulus for the British economy. Thus, the government plans to reduce tax liabilities.


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