As oil prices continue to surge, speculators’ worries about a global recession have increased, and the pound has dropped for the first time in two years against the dollar.
However, analysts said that markets’ concerns about future UK economic development also contribute to the weakening of the pound. After forecasts of economic stagnation and as inflation rises continued, the sterling may drop even further. Following Tuesday’s losses, London equities rose a little bit on Wednesday.
According to Rabobank’s head currency analyst Jane Foley, who spoke on the BBC Radio 4 Today program, the departure of two senior government ministers on Tuesday evening—including former Chancellor Rishi Sunak—was not a significant role in the decline of the pound.
For the first time since March 2020, when the first UK Covid lockout was implemented, the pound dropped below $1.19 on Tuesday. A depreciating pound increases the cost of imports like food and raises the price of gasoline at the pump. It also entails that British tourists who shop overseas receive poorer value for their money.
However, the prices of UK goods and services that are exported might be made more alluring to international consumers. On Wednesday, the pound-to-dollar exchange rate was unchanged while markets in London and Europe rose, with some analysts speculating that they were resetting to a lower level.
On Wednesday morning trade, the FTSE 100 stock market in London, which had dropped by almost 3% on Tuesday, increased by approximately 1%.
According to Russ Mould, investment director at AJ Bell, markets may have recovered some lost ground due to investor optimism that a proposed company tax increase for 2023 may be dropped. Another possibility, he noted, is that equities were “oversold” on Tuesday. Because investors view the dollar as a safe investment due to rising US interest rates, it is performing well.
During the pandemic, scores of people left the labor force, and as a result of Covid and Brexit, foreign employees who had already left the labor force did not return.
According to George Godber, an investment manager with Polar Capital, gas costs is expected to increase much later in the year.
According to a Tuesday BBC article, home energy costs in the UK are expected to reach £3,000 annually this winter. According to Mr. Godber, the recent decline in the value of the pound was also brought on by the UK government “aggravating the Northern Ireland protocol.”
Investors have expressed concern that the government may decide to renegotiate some of the post-Brexit commercial arrangements for Northern Ireland, which could start a trade war. Because crude oil is traded in dollars and is therefore affected by changes in the price of crude oil, changes in the price of gasoline at the pump are mostly determined by these factors.
Prime Minister Boris Johnson’s attention is on “delivering,” according to Chancellor Nadhim Zahawi, who was named to the position on Tuesday.
