British pound hits record low against dollar

The value of the British pound has dropped to a new all-time low in comparison to the dollar.

On Monday, the British pound fell to an all-time low against the US dollar as worries about the UK government's finances grew.

During trading in Asia and Australia on Monday, the pound fell almost 5% to just above $1.03. This was on top of a 3.6% drop from Friday, which made people think the pound could fall to the same value as the US dollar. It slowly went back up to $1.07 as European traders came back online.

In response to high inflation, British Chancellor of the Exchequer Kwasi Kwarteng said on Friday that the UK would make the biggest tax cuts in 50 years and increase government borrowing and spending. This caused the value of the pound to fall.

The opposition Labour Party and even some members of the Chancellor's own Conservative party have criticised the new tax-cutting measures as "trickle-down economics." These measures include getting rid of plans to raise corporation tax and lowering the top rate of income tax.

Kwarteng doubled down over the weekend. In TV interviews on Sunday, he said that the tax cuts announced on Friday were "just the beginning" of the government's push for growth.

Lord Ken Clarke, a former Tory chancellor, said on Sunday that the tax cuts could cause the pound to fall apart.

In an interview with BBC radio, Clarke said, "I'm afraid that's the kind of thing that's usually tried without success in Latin American countries."

The pound has been hit hard by a string of bad economic news and the sharp rise of the US dollar, which is seen as a safe investment and gets more money when things are uncertain.

After Giorgia Meloni won an election in Italy, the euro fell to its lowest level in 20 years. Investors are keeping an eye on what would be the most far-right government since Benito Mussolini's fascist times. This has raised concerns about how the European Union will stay together.

But the pound is hurting more than most because of the UK's economy. The UK has the highest inflation rate among the G7 countries, and the government is taking a huge financial risk on growth. So far this year, it has lost almost 21%, while the euro has lost 15%.

On February 25, 1985, one pound was worth just over $1.05. That was the previous record low for the British pound against the US dollar.

"Should the war in Ukraine get worse, both the pound and the euro will fall sharply," said Clifford Bennett, chief economist at the Australian brokerage firm ACY Securities.

"Don't forget that Europe is in a crisis right now, and the pound is more at risk than most currencies," he said.

On Monday, the major Asian currencies all fell due to the strengthening of the US dollar, which had been rising throughout the day.