Pound falls below $1.30 for first time in 3 decades

07 Jul '16

2 min read

British currency pound sterling has fallen below $1.30 for the first time in more than 30 years amid increasing concerns about UK's financial stability post its decision to leave the European Union.

The Bloomberg British Pound Index, which measures the UK currency against other major currencies, has fell 13 per cent since the referendum, and dropped to the lowest since the agency started maintaining data in 2004.

Soon after the last month's referendum, pound had shrunk to $1.28, but the rate steadied thereafter. However, investors have now started weighing in implications of interest rate cuts and central bank money-printing to boost economy.

Concerns have arisen on whether Britain's real estate market would sink further due to Brexit after suspension of a handful of property funds, which has triggered a new wave of pound selling. Russian and Chinese investors have invested in London property in recent years and stoppage of this investment flow would also affect the British pound exchange rate vis-à-vis other currencies.

There is also a concern that Britain's economy may fall into a recessionary period, if the country fails to control the aftershocks of the referendum.

The effect of pound's fall is also being felt on the Japanese yen, as investors seek solace in Japanese currency. Prime minister Shinzo Abe has already asked Bank of Japan to work the G7 nations to secure market liquidity of yen.

According to analysts, a weaker pound would be a boon for British exporters, but it also signals declining confidence in the UK's economy. This declining confidence may dry up funds inflow and further increase the country's current account deficit. (RKS)

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