Pound hits record low versus dollar, markets drop on recession fears – Business

Sterling hit a record low against the dollar on Monday as worries swept the UK economy after the government announced a huge tax cut budget.

The sell-off came as most stock markets across Asia fell again on growing expectations that central bank rate hikes to combat runaway inflation would lead to deep and painful recessions.

Officials in several countries, including the United States, Britain, Switzerland and Sweden, unveiled further hikes in borrowing costs.

The moves sent stock markets deep back into the red after officials reiterated their focus on fighting inflation, even if it means triggering a recession.

But the week’s biggest casualty was the pound, which fell below $1.10 for the first time since 1985 as new finance minister Kwasi Kwarteng announced his controversial mini-budget.

Losses were then extended to an all-time low of $1.0350 in Asian trading on Monday after he said he intends to announce further cuts despite his budget causing turmoil in London markets.

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It also fell to a two-year low against the euro, although the single currency remains under pressure against the dollar and is at 2002 levels.

Now observers are warning that the pound could fall to parity with the greenback.

Kmacheng, who was installed by Liz Truss after she became Prime Minister earlier this month, said he plans to cut taxes to boost Britain’s economy and provide money to protect families from skyrocketing energy bills.

But investors were spooked by the huge borrowing likely to be needed for the multibillion-pound package, which critics said would benefit the wealthy much more in a cost-of-living crisis.

“Whether the UK government’s announcement of the biggest tax cut since 1972… will result in a significant growth dividend over time is something markets are yet to ponder,” said National Australia Bank’s Ray Attrill.

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“Instead, they have been consumed by concerns about the extent of the UK government’s short-term financing needs at a time when the current account deficit is more than 8% of GDP.” .”

And former US Treasury Secretary Lawrence Summer has been scathing about the UK’s recent monetary policy decisions.

“I’m very sorry to say this, but I think the UK is behaving a bit like an emerging market turning into a sinking market,” he said Bloomberg Television Wall Street Week last week.

“Between Brexit, how far the Bank of England has come around the corner, and now this fiscal policy, I think the UK will be remembered for having (carried out) the worst macroeconomic policies of any major country in a long time.”

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Sterling’s collapse came as markets around the world reeled from recession fears caused by sharp monetary tightening by central banks battling decades of inflation.

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The pullback in London was mirrored in Europe and New York, where the Dow hit a two-year low and Asia trailed behind.

Tokyo slipped 2 percent as local traders returned from a long weekend hiatus, while Sydney, Seoul, Singapore, Taipei and Jakarta also fell.

But Hong Kong rose as traders welcomed the news that the city had eased strict hotel quarantine measures for travelers, giving the struggling economy a much-needed boost.

Macau’s casino shares advanced as the city announced it would resume Chinese tour groups from November after being blocked during the pandemic. Stocks in Shanghai also rose.

Oil prices are up modestly, though doing little to cushion the big losses suffered on Friday, as expectations of a recession loom higher than demand expectations.

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