The British pound traded at approximately $1.18 on Sunday, just four cents away from its lowest performance against the dollar in the last 37 years. With talk about UK inflation exceeding 18% in the next year, the Bank of England is forecasting a five-quarter recession starting later this year.
Geoff Yu, a senior currency strategist at Bank of New York Mellon Corp., is doubtful that the pound can spark a rebound in the near future. “Is there more downside? Yes, absolutely. Even if things improve, the sterling can’t return to where it was in the past at $1.40 or $1.45. That’s going to be very hard to achieve,” Yu observed.
Inflation has been at the center of this issue, having hit a 40-year high of 10.1% year-on-year last month. This has led to soaring prices, particularly energy costs, plunging half of UK households into energy poverty ahead of the coming winter months.
The upside of a weaker pound is that UK exporters have enjoyed a sales boom due to increased demand. Stocks have also remained stable, with the FTSE 100 Index gaining a slender 0.3% so far in August.