Pound falls to new low against dollar

Britain's new prime minister, Liz Truss, was given a rough introduction to her new job after the pound slumped in value against the US dollar on her first full day in office.

At one point on Wednesday, sterling was trading at $1.1406, its lowest level since 1985.

Against the euro, the pound was also down almost 1 percent to 86.83, but sterling has always performed better against it than against the United States currency, being down just 3 percent for the year against the euro, as opposed to more than 15 percent against the dollar.

According to US news network CNBC, the lowest ever recorded level for the pound against the dollar was $1.052 on Feb 26, 1985.

The disparity is largely down to the strength of the dollar, rather than the weakness of sterling, but it only serves to underline the huge economic challenges that lie ahead for Truss, as Britain battles with double-digit inflation, the cost of living crisis, and soaring energy bills, which she said in her first public address as prime minister would be one of her top policy priorities.

"The economic challenges facing the UK economy are probably of a magnitude as great as anything we've seen in living memory," Mark Dowding, chief investment officer of BlueBay Asset Management, told the Wall Street Journal.

Goldman Sachs has previously warned that inflation in the UK could top 22 percent next year, leading to a 3.4 percent contraction of the economy.

"There's a really bleak path in which you end up with the UK almost needing to go back to the International Monetary Fund (IMF) for a bailout as a quasi-emerging market crisis," added Dowding, calling to mind the memory of the $3.9 billion loan the UK was forced to seek from the IMF in 1976. "That's the very worst of scenarios".

Valentin Marinov, head of G-10 currency research at Credit Agricole in London, said that the markets were "seemingly relishing the opportunity to bash the British pound".

On Monday, the day Truss won the Conservative Party's leadership election and was announced as the UK's new leader, Deutsche Bank said that investors would be looking closely at her policy announcements and that the risk of what it called a "sterling crisis" was genuine.

"With the current account deficit already at record levels, sterling requires large capital inflows supported by improving investor confidence and falling inflation expectations. However, the opposite is happening," said a note from Deutsche Bank FX strategist Shreyas Gopal.