GBP Hit an All-Time Low against USD

The British pound fell to an all-time low against the US dollar early Monday after Treasury chief Kwasi Kwarteng pledged a sweeping package of tax cuts, fuelling concerns about the governments economic policy as the United Kingdom teeters toward recession.

It dipped as low as $1.0349 early on Monday but then rebounded to $1.07.

The UK government's new tax-cut plan has sparked concerns that increased public borrowing will worsen the nations cost-of-living crisis.

What Is Going on in the UK？

This comes as the British currency plunged more than 3% on Friday, trading at levels last seen in the early 1970s. GBP has hit its historical all-time low against the USD falling below the $1.04 mark. This was the reaction to the tax cuts announcements that will take place for the first time since 1972. It seems like the nation is about to get back to a so-called trickle-down economy once promoted by Thatcher and Reagan.

The pound sterling reacted negatively to the announcement of the UK mini budget‘s income tax cuts, stamp duty reductions, scrapped corporate tax increases and bankers’ bonus caps as investors worry about the governments ability to finance these initiatives without incurring a huge debt burden as the cost of borrowing is continuing to increase. This is apparent as 5-year gilt yields increased to 4.5%, a 100-basis point (bp) move since Friday.

On Tuesday morning, the British pound experienced a slight recovery and pulled back to $1.078. However, the situation may go even worse taking into account the announcement of the government to hike interest rates with no hesitation if needed to get inflation back to its medium-term level, which is 2%.

Experts say the new chancellor and the Bank of England take an enormous risk when reluctantly raising the rates despite clear pressure.