The British pound just crashed 5% to a 37-year low against the US dollar today — here’s why currency carnage continues across the pond
On Monday, the British pound dropped to a record low against the U.S. dollar. The U.K.’s currency lost 4.7% overnight to trade at $1.035.
That’s below the previous record of $1.05 set in February 1985.
The pound is now worth nearly 21% less than it was at the start of the year when compared to the U.S. dollar.
This historic slump spells bad news for the U.K., which is already struggling with rising costs and a looming energy crisis. And the market’s reaction could be a sign that trouble is far from over for the Brits.
Boomer’s remorse: Here are the top 5 ‘big money’ purchases you’ll (probably) really regret in retirement
The Crown Estate — estimated at over $34B in assets — now belongs to King Charles III. But he won’t have to pay the UK’s 40% inheritance tax. Here’s why.
These top 5 housing markets are expected to crash first — do you live in one of these fast-growing cities?
What’s behind the pound’s pounding
The slide in the pound’s value may have been triggered by an announcement from the U.K.’s Chancellor of the Exchequer, Kwasi Kwarteng. On Friday, Kwarteng unveiled the government’s plans to implement the biggest tax cut in 50 years while boosting government borrowing to kick-start economic growth.
As part of the initiative, Kwarteng scrapped plans for an increase in corporation tax and slashed the top rate of income tax. The stamp duty for home purchases was trimmed, while the defense budget was boosted. The government also announced a freeze on energy prices for British businesses and consumers.
The tax cuts are expected to cost the government 45 billion pounds ($48.17 billion), while the energy support is expected to amount to 60 billion pounds ($64.12 billion) over the next six months.
And to accommodate higher spending and reduced tax revenue, Kwarteng’s office announced a change to the fiscal rules that would allow the British government to borrow more.
The market responds
Fixed income traders have reacted to this announcement by punishing U.K. government bonds. The yield on the 2-year gilt (British term for “safe bonds”) surged 41 basis points on Friday and another 57 basis points on Monday to hit 4.48%.
That means the government’s short-term borrowing costs have risen significantly.
Government officials have expressed they believe lower taxes and higher spending could spur growth.
Read more: What do Ashton Kutcher and a Nobel Prize-winning economist have in common? An investing app that turns spare change into a diversified portfolio
However, analysis from the Organisation for Economic Co-operation and Development (OECD) shows some may not share that same level of confidence. On Monday, based on the new tax and spending measures, the OECD downgraded the U.K.’s growth expectations for this year and next year.
Where the UK goes from here
This level of currency volatility is uncommon for a developed economy.
In a statement on Monday, Bank of England Governor Andrew Bailey said that the bank’s monetary policy committee “will not hesitate to change interest rates by as much as needed” to tame inflation and they are “monitoring developments in financial markets very closely.”
Some traders were expecting a quick interest rate hike from the Bank of England to help shore up the currency. Others still believe any verbal reassurance from the central bank could be sufficient to stem the losses and prevent a currency crisis.
A weaker currency may have far-reaching effects on the British economy. U.S. exporters may benefit from added revenue while foreign travelers could be encouraged to visit the country as their money stretches further.
Conversely, the weaker pound is bad news for importers and British consumers. The currency crisis could make everything, from fuel to food, more expensive. Britain is already facing an unprecedented wave of inflation, with a current rate of 8.6 %.
Meanwhile, the energy crisis is expected to intensify as winter approaches. A weaker pound could only aggravate these issues.
At the time of writing, the pound has stabilized around $1.07.
What to read next
Sign up for our MoneyWise investing newsletter to receive a steady flow of actionable ideas from Wall Street’s top firms.
Warren Buffett likes these 2 investment opportunities outside of the stock market
‘Imagine you are laid off’: Suze Orman’s tough-love tips to prepare for the recession ahead
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
$100 million New Jersey deli scheme leads to U.S. fraud charges
Three men, including a father-and-son duo, were criminally charged on Monday with orchestrating a market manipulation scheme that briefly caused the owner of a tiny New Jersey deli to have a more than $100 million market valuation. Peter Coker Sr, 80, Peter Coker Jr, 53, and James Patten, 63, were charged by the U.S. Department of Justice in a 12-count indictment with securities fraud and conspiracy, while Patten was also charged with wire fraud, money laundering and securities manipulation. The U.S. Securities and Exchange Commission filed related civil charges.
The Wall Street Journal
Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.
It is the worst year for buying the stock-market dip since the 1930s. Instead of rebounding after a tumble, stocks have continued to fall, denting a strategy that soared in popularity over the past decade.
Retiring During a Market Downturn? Only Withdraw This Way
It’s always hard to make your retirement savings last as long as you need it to – but it becomes even harder when you’re retiring during a market downturn, as Americans retiring right now are experiencing. A market downturn means … Continue reading → The post How to Retire During a Market Downturn: It’s All About Withdrawing This Way appeared first on SmartAsset Blog.
Goldman Slashes Oil Price Forecasts But Says It Remains Bullish
(Bloomberg) — Sign up for our Middle East newsletter and follow us @middleeast for news on the region.Most Read from BloombergGermany Suspects Sabotage Hit Russia’s Nord Stream Gas PipelinesEverything-Selloff on Wall Street Deepens on 98% Recession OddsStocks, Commodities Drop; US Treasury Yields Surge: Markets WrapJohn Paulson on Frothy US Housing Market: This Time Is DifferentUK Market Selloff Slams Gilts, Pound, Piling Pressure on BOEGoldman Sachs Group Inc. sharply lowered its oil price for
Biden Tells Oil Companies ‘Bring Down Prices You’re Charging’
(Bloomberg) — While US gasoline prices have come down from the highs seen this summer, they’re clearly still weighing on President Joe Biden, who on Monday repeated demands for oil companies to charge less.Most Read from BloombergJohn Paulson on Frothy US Housing Market: This Time Is DifferentEverything-Selloff on Wall Street Deepens on 98% Recession OddsStocks, Commodities Drop; US Treasury Yields Surge: Markets WrapUK Market Selloff Slams Gilts, Pound, Piling Pressure on BOEWall Street Banks
Exclusive-India’s push for home-grown navigation system jolts smartphone giants
India is pushing tech giants to make smartphones compatible with its home-grown navigation system within months, worrying the likes of Samsung, Xiaomi and Apple who fear elevated costs and disruptions as the move requires hardware changes, according to two industry sources and government documents seen by Reuters. In line with Prime Minister Narendra Modi’s drive for self-reliance, India has over the years expanded the use of its regional navigation satellite system called NavIC (Navigation with Indian Constellation).
European Gas Prices Jump After Damage to Idled Russian Pipelines
(Bloomberg) — European natural gas surged after four days of losses as damages reported at the shuttered Nord Stream pipeline added to uncertainty over future Russian supply. Most Read from BloombergGermany Suspects Sabotage Hit Russia’s Nord Stream Gas PipelinesEverything-Selloff on Wall Street Deepens on 98% Recession OddsStocks, Commodities Drop; US Treasury Yields Surge: Markets WrapJohn Paulson on Frothy US Housing Market: This Time Is DifferentUK Market Selloff Slams Gilts, Pound, Piling
Presidents Cup 2022: Jordan Spieth leads Team USA to 9th straight win
Jordan Spieth went a perfect 5-0-0 on the week to lead the United States past the International Team once again at Quail Hollow.
Faraday Future raises $100 million to help launch flagship FF 91
Faraday Future said it has secured up to $100 million in funding as the struggling EV startup tries to launch its long-delayed first model, the FF 91. The near-term funding agreements include up to $40 million in convertible notes and warrant exercise payments, and up to $60 million in convertible notes from Hong Kong holding company Senyun International. Despite the infusion, Faraday warned of future cost reductions and layoffs.
Bank of England signals ‘significant’ response to pound turmoil – live updates
Banks pull mortgages from sale amid interest rate chaos Britain should have a nuclear reactor fleet to rival France FTSE 100 opens 0.4pc higher Ben Wright: Doomster Rishi Sunak was right about Trussonomics Sign up here for our daily business briefing newsletter
The Wall Street Journal
Shares of Big U.S. Banks Take a Beating
The tumult in currency markets has walloped big, U.S. banks with large trading operations and a sizable presence in FX markets. Shares of JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley were already having a rough ride when the U.K. on Friday announced a huge package of tax cuts and subsidies. That sent the banks’ shares even lower. The pain continued Monday as the British pound touched a record low against the dollar before rebounding.
3 Retail REITs With The Highest Upside According To Analysts
When you get a 1-2 punch of inflation and recessionary fears as we’ve had in 2022, investors begin to lose faith in the ability of shopping centers and regional malls to thrive under adverse conditions. As a result, the prices of retail stocks have been hit hard in recent months. Analysts have been forced to lower their target prices, yet their upside targets from current levels remain high. Here are three retail REITs that analysts have recently cited as having the highest potential upside: RPT
You’ll Earn This Much Annually On $1.5 Million
Whether you’re saving to retire, or have just come into a nice windfall, knowing where to put your money to grow it is essential. There are multiple ways money can build interest, but how much interest does $1.5 million earn per … Continue reading → The post How Much Interest Can $1.5 Million Earn Per Year? appeared first on SmartAsset Blog.