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3 Sep, 2019 12:50

British pound sinks to 34-year low against US dollar amid snap election fears

British pound sinks to 34-year low against US dollar amid snap election fears

The pound has dropped to its lowest point since 1985, after British Prime Minister Boris Johnson vowed to call another general election in October if parliament hobbles his efforts to pull the UK out of the EU without a deal.

The UK currency plummeted by 0.66% against the US dollar in early trading on Tuesday, with sterling standing at $1.1959. The rate represents a 34-year low for the British currency with the exception of the ‘flash crash’ that occurred after then-French president François Hollande’s Brexit remarks on October 7, 2016. The pound's decline against the euro was much less worrisome, with a mere 0.2% drop to a two-week low of 91.33 pence. The pound’s all-time low against the US dollar was $1.0552 on 29 March 1985.

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This latest collapse comes after Prime Minister Johnson placed an implicit ultimatum on lawmakers on Monday, to back him on Brexit or face yet another general election, which would be held on October 14.

Johnson’s opponents within the Conservative Party are planning to use parliament’s first day back from its summer break to launch the first stage of their attempts to block the prime minister’s plan to ditch the European Union without a transitional deal by the October 31 deadline. Experts say that, given the circumstances, the nearest future of the pound is rather uncertain.

“The next 48 hours are potentially quite significant, and sterling shows you that. [They] will determine whether or not this high risk strategy from the prime minister has paid off, or whether or not he has been corralled into a corner,” Andrew Milligan, head of global strategy at Aberdeen Standard Investments, commented, as cited by Reuters.

“Sterling will remain a very vulnerable currency”

The outlook for sterling is very much determined about the probabilities of a no-deal Brexit. If the members of parliament do manage to block a no-deal Brexit at the end of next month, then that is likely to push sterling up. That said, political uncertainty and a general election will likely push sterling down,” Jane Foley, currency and economy experts at Rabobank, said on BBC’s Radio 4. 

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