The pound fell below its pandemic lows against the dollar on Monday morning after weeks of weakening, sending it to the lowest point in decades.
It means that it has been 37 years since British holidaymakers in the US, and importers bringing products into the UK, got so little bang for their pound.
It briefly fell to a low where one pound could buy just 1.1443 dollars, below the 1.14506 it touched on March 19th, 2020.
The fall will make imports considerably more expensive for Britons, as much global trade is transacted in dollars.
Back in 1985 when sterling was last lower, countries came together to intentionally weaken the dollar against its international counterparts, especially the German deutsche mark and the Japanese yen.
In the so-called Plaza Accord – named after the New York hotel where it was signed – the G5 countries, Germany, the UK, the US, France and Japan, agreed to work towards devaluing the dollar.
A five-year growth spurt in the US currency had hurt American manufacturers as it made imports cheaper for US customers to buy.
“This time there will be no Plaza Accord to rescue us,” said Neil Wilson, an analyst at Markets.com.
Eyes will be on the announcement of the new Conservative Party leader later on Monday, which could put further pressure on the pound, although one analyst said that the appointment of Liz Truss could lead to a short-lived bounce.
“We could see some profit taking and a ‘sell-the-fact’ rally in sterling when Liz Truss’s victory is confirmed,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
But she argued that over the longer term, Ms Truss’s premiership is likely to be bad for sterling.
She could change the Bank of England’s mandate away from controlling inflation, and have it focus on growth, Ms Ozkardeskaya said.
“The pound is expected to continue its journey toward parity against the US dollar, as the dollar continues rising relentlessly,” she added.
Before the pound dropped to its nearly 40-year low, Fiona Cincotta, senior financial markets analyst at City Index, said: “Foreign Secretary Liz Truss is expected to take over at the helm.
“However, the pound trading at its lowest level since March 2020 suggests that the market is worried about her strategy of cutting taxes to turbocharge the economy.
“This could easily backfire and send inflation higher still.”
Meanwhile, on Monday the euro also dropped below one dollar for the first time in two decades.
It comes as economies across Europe are battered by soaring gas and electricity prices, due to the war in Ukraine and several other factors.
