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What is happening to the pound?

What is happening to the pound?
A week is a long time in politics, so – as Theresa May is learning the hard way – is a day. Cabinet resignations, a vote of no confidence and a woeful lack of support for her draft Brexit agreement have left people worried about the future of the UK. That has caused the pound to slip below $1.28 – almost its lowest level in more than three decades. Read on to find out what is happening to the pound.

You have to go back a long way to find the last time the pound would buy you so few US dollars. February 1985 to be exact when the value of the sterling slumped to just $1.05. Then, as now, a female UK prime minister was fighting creeping protectionism from a camera-happy Republican president.

But then (not as now), the main cause of the pound’s weakness against the dollar was the strength of the latter. In 1985, the US currency was flying thanks to President Ronald Reagan’s tax cuts and increased federal spending. The dollar rose 26% between 1980 and 1984 as the US economy strengthened, pushed up long-term interest rates and attracted huge amounts of cash.

Then (also in a stark contrast to now), the UK economy was performing well and the value of the pound appreciated quickly against the dollar after central bankers intervened in foreign exchange markets in late 1985.

Major pound blips since then include the 1992 slip…

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