LONDON, Sept 1 — Sterling fell against the dollar today, adding to August losses that were its worst since late 2016, as storm clouds gather over the British economy.

The pound slid to as low as US$1.1545 (RM5.17), a fresh low since March 2020, when the Covid-19 pandemic wracked markets. It was last hovering just above that at US$1.15665, down 0.48 per cent.

The British currency lost 4.6 per cent against the dollar last month in its worst performance since October 2016, and has lost 14 per cent this year, fuelled by concerns about slowing growth in the British economy as inflation gathers pace.

British inflation soared to 10 per cent in July, its highest in 40 years, and is predicted to climb higher, squeezing the pay packages of hard-hit consumers further. British government bonds are suffering, too, enduring their biggest monthly fall since 1994.

“It seems like a bit of a perfect storm now for the pound,” said Viraj Patel, global macro strategist at Vanda Research in London, “there is this whole sell Europe, sell UK theme going on right now and it is getting quite extreme given the myriad of political and energy risks.”

“There’s also a Liz Truss risk premium starting to get priced in. Clearly the market is not responding well to some of the policies Truss has announced, especially the funding of the twin deficit in the UK,” he added.

Truss, currently foreign secretary, is the front runner in the race to replace Boris Johnson as Britain’s Prime Minister, which is due to conclude next week.

August was also sterling’s worst month against the euro since May 2021. Today, it dropped to as low as 86.7 pence per euro, its lowest in two months.

The pound’s problems have been compounded by a strengthening dollar. The US dollar index which measures the greenback against a basket of currencies, was up 0.4 per cent at 109.15, not far off its two-decade high of 109.48 hit on Monday.

The greenback hit a 24-year high against the Japanese yen earlier today, boosted by the ever widening gap between the yields on US and Japanese government debt.

“It’s not just sterling weakness — it’s a dollar strength story,” said Michael Hewson, chief markets analyst at CMC Markets. “Sterling has its problems, but they are not unique to it — high inflation, surging energy prices and falling disposable incomes.” — Reuters