The slide came as trading opened in Asia and Australia on Monday, extending a 2.6% dive from Friday — and spurring predictions the pound could plunge to parity with the US dollar in the coming months.
The new tax-slashing fiscal measures, which include scrapping plans for rising corporation tax and slashing the cap on bankers’ bonuses, have been criticized as “trickle-down economics” by the opposition Labour party and even lambasted by members of the Chancellor’s own Conservative party.
Former Tory chancellor Lord Ken Clarke criticized the tax cuts on Sunday, saying it could lead to the collapse of the pound.
“I’m afraid that’s the kind of thing that’s usually tried in Latin American countries without success,” Clarke said in an interview with BBC radio.
The pound has been hammered by a string of weak economic data, but also the steep ascent of the US dollar, a safe haven investment that sees inflows in times of uncertainty.
The euro also hit a 20-year low of 0.964 per dollar.
But the economic outlook in the UK means the pound is suffering more than most, in the face of a disastrous energy crunch and the highest inflation among G7 nations.
The previous record low for the British pound against the US dollar was 37 years ago on February 25, 1985, when 1 pound was worth $1.054.
“Should there be any escalation to the war in Ukraine…we would see further sharp downside in the Pound as well as the Euro,” said Clifford Bennett, chief economist at ACY Securities, an Australian brokerage firm.
“One should not underestimate the crisis that is all of Europe at the moment and the Pound is more vulnerable than most,” he said.
Asian markets and currencies crack
The soaring US dollar also sent major Asian currencies tumbling on Monday.
China’s yuan slid 0.5% on the onshore market to the lowest level in more than 28 months. The offshore yuan fell 0.4%.
The rapid declines prompted the People’s Bank of China to impose a risk reserve requirement of 20% on banks’ foreign exchange forward sales to clients, starting Wednesday. The move would make it more costly for traders to buy foreign currencies via derivatives, which might slow the pace of the yuan’s declines.
The Korean won also plunged 1.6% on Monday versus the greenback, falling below the 1,420 level for the first time since 2009.
“Risk sentiments have been dealt a major blow by the Fed’s latest policy action and…