Closing summary
The pound has fallen to its lowest level since 1985 against the dollar. It fell as much as 0.9% to $1.1407, according to Refinitiv data. The dollar also hit a 24-year high against the yen.
European stock markets are in the red amid global recession fears, with the UK’s FTSE 100 index down 0.8% at 7,241, while Wall Street has notched up modest gains.
The UK’s new chancellor, Kwasi Kwarteng, has used his first meeting with bank bosses to reiterate his support for the Bank of England’s independence, and set out an “unashamedly pro-growth agenda”.
He also said there would be higher borrowing in the short term to fund the energy support measures, to be unveiled tomorrow (and rumoured to cost £100bn to £150bn).
A leading economist has expressed concern that Liz Truss’s plans to freeze energy bills will benefit affluent people more than the less well-off. Paul Johnson, director of the Institute of Fiscal Studies, described the support package as “very poorly targeted”.
You can follow the latest devs on the energy crisis on our politics live blog here:
As the EU set out plans for windfall taxes, power savings and a cap on Russian gas prices, the Russian president threatened to cut off energy supplies if price caps are imposed on Russian oil and gas exports, saying that the west would be “frozen” like a wolf’s tail in a famous Russian fairy tale.
Here’s a round-up of today’s other stories:
Sterling drops to lowest level since 1985 versus dollar
The pound has fallen to its lowest level since 1985 against the dollar, knocked by the dollar’s broad-based strength and a worsening UK economic outlook.
It fell as much as 0.9% to $1.1407 and is now at $1.1422, down 0.8%, according to Refinitiv data.
This is partly because of a generally strong dollar, as the Bank of England governor Andrew Bailey noted this morning. The dollar hit a 24-year high against the Japanese yen today, and has been testing a 20-year high against the euro.
AJ Bell investment director, Russ Mould, said today:
While UK-based investors will be well aware of how weak the pound is against the US dollar, … sterling is not the only currency whose decline against the greenback is gathering pace.
The DXY index, which measures the value of the dollar against six major currencies, stands at its highest level since 2002. Investors need to keep a close eye on this, because periods of marked dollar strength in the past have seen chaos in emerging markets, but also weakness in developed market stocks and commodity prices for good measure.
The big question now is whether the run in the DXY index – and thus the dollar against a basket comprising the euro, the yen, sterling, the Canadian dollar, Swedish krona and Swiss franc – is paving the way for a fourth major advance in the US currency since the so-called ‘Nixon shock’ and America’s withdrawal from the gold standard and Bretton Woods in 1971, following bull runs in the buck during 1971-1979 and 1985-1995 and 2011-2016.
The US Federal Reserve’s interest rate increases and acceleration this month of its quantitative tightening programme are, respectively, increasing the returns available on dollars relative to other currencies and at the same time draining dollars from the global economy, to almost create a shortage of bucks.
Updated
