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The pound sterling reached its lowest level on Wednesday



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Sterling fell against the dollar to its lowest level since 1985 at $1.1407 on Wednesday as investors reacted to the UK’s negative economic outlook, while a new prime minister is at the helm of the British government. reports CNBC.

The British currency later recovered, being traded down 0.4% at $1.1469 per unit.

British Prime Minister Liz Truss was officially appointed on Tuesday, after succeeding Boris Johnson in a closely contested election. She inherits an economy in its worst cost-of-living crisis in a generation, with inflation reaching 10.1% in July.

The pound fell to $1.1444 in the hours following her victory on Monday, but has since fallen further as traders grasp the implications of her appointment.

The last time sterling fell to $1.14 was briefly in March 2020 and after the Brexit referendum result in 2016.

The pound’s level of $1.1407 per unit has not been reached since 1985, under Margaret Thatcher’s government.

The pound has been hit in recent months by rising inflation, currently the highest among all G-7 nations, and the prospect of a looming recession.

The appointment of Truss, who analysts say will cut taxes and boost lending, added to market concerns about Britain’s debt.

Deutsche Bank warned on Monday that the risks of a “sterling crisis” should not be underestimated, adding that investors will now be watching closely for Truss’ policy announcements due in the coming days.

“With the current account deficit already at record levels, the pound requires strong capital inflows, supported by improving investor confidence and falling inflationary expectations. However, the opposite is happening,” Deutsche Bank currency analyst Shreyas Gopal said in a note.

The pound’s decline comes as the US dollar has risen this year amid fears of a global recession and aggressive interest rate hikes by the Federal Reserve.

The pound sterling has fallen this year by more than 15% against the dollar. Against the euro, the lira fell by almost 1% on Wednesday, to 86.83. However, the pound has held up better against the single currency this year, down just 3%.

The lowest level reached by the pound against the dollar was $1.052 per unit on February 26, 1985, according to Refinitiv data.