The pound has fallen against the world’s biggest currencies to its lowest point since the so-called flash crash of late 2016.
The Bank of England’s effective exchange rate index today sank below the most recent low point of August 2017, when a tussle over Britain’s “divorce payment” to the European Union sparked a sell-off.
The effective exchange rate is published by the Bank every day and shows how the pound compares in value to a selection of currencies such as the euro and the dollar.
On the index, 100 corresponds to the value of the pound in 2005. This morning, the BoE said the pound fell to 74.47, below the most recent low of 74.53 seen in August 2017.
Besides a freak “flash crash” in 2016, when an unexplained sell-off sent the pound crashing over five per cent in a number of minutes, perhaps due to an algorithm error, the pound is at its weakest since the financial crisis.
Fears over a no-deal Brexit sent sterling plunging against the dollar and euro after Boris Johnson became Prime Minister at the end of last month, driving up the price of Britons’ summer holidays.
It traded close to $1.20 as traders worried that Johnson was set on a no-deal exit from the EU after telling his ministers to ramp up preparations for such an event.
“It is beyond argument that sterling has had a torrid few years by the standards of a G10 currency, and in recent weeks it has taken a particular hammering,” said Joshua Roberts, Associate Director at financial consultant JCRA.
“From its pre-referendum peak to the lows seen in January 2017, the pound depreciated against the US dollar by around 19 per cent.”
A general election, which could bring more certainty to UK politics, might see a slight rebound in sterling.
Yet Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the economic indicators “still cast doubt on whether the Tories really would be returned with a majority”.
Survey results indicate “consumers’ confidence in the economic outlook still is close to an eight-year low,” he said. “Households think the government has mishandled the economy.”