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· Posted on
September 28, 2022

The British pound has taken a major dive and the Americans are laughing all the way to Big Ben

The British pound has tumbled to its lowest level against the US dollar.

What's the key learning?

  • Over the past week, the British pound has tumbled to its lowest level against the US dollar since 1971
  • The UK government has announced significant tax cuts for its citizens, which will require additional borrowing
  • Investors have been racing to sell the British pound in a major currency crisis

👉 Background: The British pound has historically been a really strong currency against the US dollar and all other currencies in the world.

👉 What happened: Over the past week, the British pound has tumbled to its lowest level against the US dollar since 1971. The two currencies are almost at parity.

👉 What else: The UK government announced significant tax cuts for UK citizens, which will require the UK government to borrow a heap of extra money - so investors have been racing to sell, sell, sell the British pound in a major currency crisis.

What's the key learning?

💡A currency crisis occurs when a currency, like the Pound, sees a steep decline against rival currencies. And these crises have enormous impacts on the import and export markets.

💡When the pound is worth less, the cost of importing goods from overseas goes up. And these costs will often be passed onto consumers. The UK imports more than 50% of its food so everything from bananas to meat are expected to rise.

💡Whereas for exporters, this may actually become a big opportunity - because a weaker currency makes the UK's exports more competitive in global markets.

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