Pound to Dollar Exchange Rate Slumps to 31-Year Low on Major Fears over UK Economy

July 5, 2016 - Written by Ben Hughes

STORY LINK Pound to Dollar Exchange Rate Slumps to 31-Year Low on Major Fears over UK Economy

The Pound has flopped against peers for a second day in a row, having been laid low in this case by the fact that a number of property fund traders have suspended activities after the 'Brexit' decision.

Sterling has failed to make any kind of recovery against rivals today, having maintained a state of decline against virtually all peers of late.

BoE Financial Stability Report Weighed on GBP Exchange Rates

The latest Bank of England (BoE) Financial Stability Report, published earlier today, heaped further pressure on the already down-at-heel Pound Sterling (currency : GBP).

The publication added to the sense of panic surrounding Sterling which followed last week’s warning from BoE Governor Mark Carney of the damaging effects of last month’s UK Brexit vote, darkly forecasting that,

‘The FPC is monitoring all forms of capital inflow and risk premia on a range of UK assets. It judges that during a prolonged period of heightened uncertainty there is a risk that overseas investors could continue to be deterred from investing in the United Kingdom.’

The Bank did announce another loosening of its already ultra-loose monetary policy, revealing that it will relax the capital ratio required by the UK’s retail banks, meaning that they will have an additional €150bn to lend out to individuals and businesses.

Carney explained that, ‘this is a major change,’ before going on to assert that, ‘it means that three-quarters of UK banks, accounting for 90% of the stock of UK lending, will immediately - immediately - have greater flexibility to supply credit to UK households and firms.’

The move builds on the extra €250bn which the BoE announced last week that it was making available. Adding in the near-pre-announcement of an August interest rate cut from Governor Carney, which also came at his press conference of last week, and the future prospects for the Pound appear extremely dim.

GBP USD Exchange Rate Slumped to a 1985 Low

The Pound US Dollar exchange rate slumped to its lowest level since 1985 in response to the BoE Financial Stability Report – a the time of writing, GBP USD was teetering at only just above the 1.3000 threshold.

A move down into the 1.2000s now appears highly likely, with the only prospect of avoiding sub-1.3000 rates being an indication from the US Federal Reserve that it will not be hiking its benchmark interest rate this year.

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