The British pound fell to a new record low against the US dollar of $1.035 on Monday, plummeting more than 4%.
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 unprecedented currency slump follows British Chancellor of the Exchequer Kwasi Kwarteng’s announcement on Friday that the United Kingdom would impose the biggest tax cuts in 50 years at the same time as boosting spending.
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.
The soaring US dollar also sent major Asian currencies tumbling on Monday.