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Pound plummets to 20-year low against the dollar

Jan 22 2009

Sterling is down a third from 2008's peak

The pound has plunged to its lowest level against the dollar since 1985.

Mark O'Sullivan, director of dealing at foreign exchange company Currencies Direct, says the slump is due in part to investors' reaction to the government’s second bank bailout.

He adds it also reflects fears that the UK's debts could be downgraded, making UK government borrowing more expensive.

David Karsbol, chief economist at Saxo Bank, says: ‘Although a lower pound makes exports more competitive, it’s not all good news as it leads to higher import prices.

‘Because the UK is a net importer of goods, that naturally leads to higher inflation (or lower deflation), reducing the purchasing power of UK consumers.’

The pound is currently worth $1.376, a decline of 5.9 per cent since the beginning of the month and 29.7 per cent year-on-year.

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