On September 26, major global exchange rates continued to fall. The pound sterling against the US dollar is crashing, plummeting to its lowest level since 1971. At one point, the pound fell by 4.9%, reaching 1.0327 dollars per pound, before stabilizing around 1.05 dollars per pound, which was 2.9% lower than the previous day's closing price.
Amid the collapse of the pound, the only increases were seen in the US Dollar Index and the VIX panic index.
The sudden sharp drop in the pound is mainly due to the UK government announcing last week the most aggressive tax-cut plan since 1972, reducing taxes on workers' wages and businesses to boost the UK economy, which has fallen into recession.
The main measure of the tax cuts is to reverse all previously planned tax hikes. According to the UK government, the total amount of tax cuts through these measures will reach 45 billion pounds by 2026-2027.
As the tax cut plan and energy subsidy programs require issuing a large amount of new debt for funding, investment banks are concerned that this could undermine the Bank of England's efforts to curb inflation.
The UK government holds two perspectives: one is that the new Prime Minister Truss believes growth should be promoted through tax cuts and reforms.
The other view is the Conservative Party’s stance on tax increases. The Conservative Party believes that under the impact of the Russia-Ukraine conflict, soaring energy prices in Europe have caused persistently high inflation. Amid the unpredictable direction of the energy crisis, the UK should choose to increase taxes and cut fiscal spending to avoid potential crises.
The UK's new finance minister stated: 'High energy costs are not the only challenge facing the UK...'