The dollar has seen its highest level of appreciation against the pound since 1971 when decimalisation was first introduced.
Sterling dropped to $1.0327, which is below its 1985 baseline of $1.0545. Market panic ensued.
However, some people don’t understand why and how it affects the value of the American dollar relative to the British pound.
MailOnline examines some key questions to help you understand what they could be.
The pound is down eight per cent since Liz Truss was elected PM three weeks ago and down approaching 25 per cent since that start of the year. Similar results can be seen for the euro.
The pound plummeted towards parity against the dollar as markets opened, before rising to about $1.06
British tourists love to see the Statue at Liberty in New York. However, it will soon be more expensive.
America tourist could choose to visit the UK as their dollars can go further
Why did the pound drop?
In direct response to Friday’s minibudget by Chancellor Kwasi Kwarteng, the announcement of the largest tax cuts in 50 years has caused the pound to plummet.
Why is it getting worse this weekend?
Sterling began to rise slightly after an initial drop following the announcement by the chancellor. An additional drop was seen after Mr Kwarteng said that more tax cuts would be coming.
What is the point? Could things be worse?
The expectation is that the Bank of England would raise the interest rate if the pound doesn’t rally. This will make it more costly to borrow money, which will impact mortgages and other financial obligations. Simon Jones, CEO of financial comparison site InvestingReviews.co.uk, said: ‘Sterling’s slump is fuelling speculation that the Bank of England may need to take action by hiking interest rates even before rate-setters hold their next scheduled meeting in November. More than 2 million homeowners who have variable-rate mortgages are reeling from seven increases in the base interest rate, which occurred since December. When it is time to re-mortgage, millions more homeowners with fixed rate mortgages will discover that their payments have increased dramatically.
How will the plummeting Pound affect my travels?
Yes, as it has dropped so dramatically compared to the US dollar, it will hit hard-working families in the pocket, particularly if they are travelling abroad to America. Samuel Fuller is Director of Financial Markets Online. He stated that “trips to Disney World in America just got more costly.” This year £1,000 exchanged into US dollars will buy you around $250 less than last year. However, the bad news does not end here. Brits looking to travel abroad in the other countries of the globe will be disappointed that dozens upon dozens are tied to US Dollars. To make their economies more stable, countries peg their currencies against the dollar. This means other currencies that are pegged to the dollar can also strengthen if the dollar is stronger against the pound. The prices of travel plans to countries like Malaysia, the Caribbean and Middle Eastern states like Qatar World Cup hosts will increase.
Yesterday’s interview with Laura Kuenssberg by the British Chancellor of Exchequer Kwasi Kwarteng
Prime Minister Liz Truss gives a speech during Wednesday’s visit to America to address members of United Nations New York.
Is it only travel to America or will that be the main attraction?
Tourism in the USA will suffer as holidays are more costly and commodities and services become more expensive. There will also be a knock-on effect to other countries which could be included on tourist destinations lists. Panama, Qatar, and Saudi Arabia all have their currencies tied to the dollar.
It will make it more costly here in Britain.
The UK imports more goods than it exports, so the fall in the pound will impact the price of these items. Due to its weakness, anything that is imported from the States may cost more than the equivalent value in the UK before it falls.
How could certain items become more expensive than others?
Currently – for 2021’s most recent figures – machinery, nuclear reactors and boilers are imported from America to the tune of some $12.94billion. A large number of imported products also include mineral fuels, oils and distillation products, which account for $7.97 billion. It means shops here will have to pass on that cost to customers – meaning a hike in some prices.
Will food cost more?
Importing food into the UK can result in higher prices, even though the pound is worth less.
Imported ingredients from the US are more costly, which will result in food being more expensive.
Beer, particularly craft beer, will increase because most hops come from the States.
Does that make it more costly to eat at restaurants?
Yes. Any additional costs incurred by imported ingredients have to be passed along to the paying customer.
You might consider a refreshing drink that will ease your anxiety.
It is possible that even a pint beer’s cost could be affected by the fall in the pound because of manufacturing costs.
Are British-made drinks safe if they don’t come from the United States?
Because ingredients are imported from abroad, even these can be affected. Paul Davies, the Carlsberg Marston’s Brewing Company chief executive officer, stated: “Many hops used here are actually imported. A lot of them, especially for craft beer brewers.
Is there any benefit to the Sterling to Dollar disparity?
Some potential effects can have a positive impact on the UK’s economy.
A weaker Pound could encourage US tourists to visit the UK as they can get more money for their dollar.
This means that there’s a possibility the economy could be stimulated, which can be very good news.
It will encourage US tourists visiting the country?
If they choose to travel from the United States, then tourists will receive more for their dollars. As will accommodation, the cost of food and services will be lower.
What will it do for the situation?
Spending more money will make the economy healthier, and the Bank of England may lower the interest rate.
Do you see any silver linings in this?
A weaker pound might make UK exports attractive to US buyers. UK buyers will see a greater value, which could lead to more trade. This can help the economy. Samuel Fuller is Director of Financial Markets Online. He stated that Britain’s biggest exporters will benefit from a weaker pound. All the products they sell overseas to clients have become cheaper, which should lead to increased sales. This is a great thing for British industries. Don’t forget the important services sector, which accounts for a large portion of the export pie. Inflation is not only raging in the UK, but all over the world. This will help UK exporters. The fall in the pound may have been offset by higher home prices. However, imports are becoming increasingly expensive which is helping keep home inflation high. The inflation figures reflect what we purchase, and not its origin. Economists refer to this as “imported inflation” when the cost of imported goods exceeds domestic budgets.