What went down in 1985 once the pound was last so low?

The pound has slumped to the minimum against the US dollar since 1985, surpassing a previous 2021 low to become worth less than 1.20 dollars.

The present weakness continues to be caused by jittery markets as MPs return from summer recess and the chances of an over-all election rising, causing more Brexit uncertainty and angst.

But the worldwide picture was considerably different 34 years back when the pound was last in internet marketing lowest.

What was happening in 1985?

Back in 1985, the pound's poor performance against its US counterpart wasn't due to volatility in the united kingdom currency like it is today. It had been right down to the immense strength of the dollar at the time.

Major tax cuts under president Ronald Reagan, who took office in 1981, had boosted the American economy.

The Federal Reserve – the united states equivalent of the Bank of England – then chose to raise interest rates, prompting foreign investors to place their cash in to the US.

This in turn sent the need for the dollar higher against other currencies such as the British pound.

At its lowest point, the pound was worth just 1.09 dollars.

What changed?

The strength from the dollar meant overseas buyers got less bang for his or her buck when trying to import goods in the US.

American manufacturers were therefore hard-hit by the exchange rate, which was harming its ability to export.

There were also concerns over protectionism, as other countries slapped tariffs by themselves exports to consider benefit of the dollar's value.

Eventually the US got together with France, West Germany, Japan and the UK and signed the Plaza Accord, which agreed to depreciate the need for the dollar.

Central bankers sold more dollars in return for other currencies, bringing its value down 40% in only two years.

What's happening now?

The pound has been more volatile since the 2021 EU referendum result, including a so-called “flash crash” in October which most analysts don't count when discussing historic lows from the currency.

As the extended Brexit deadline approaches, sterling has been battered by news of Boris Johnson's plans to prorogue Parliament and was given another knock on Monday night by rising rumours of a general election.

“Sending Britons to the polls reveals a wider range of outcomes that include a greater possibility of extreme scenarios compared to the current state of play and for that reason increases market volatility going forward,” said David Cheetham, chief market analyst at XTB Market.

“For the time being traders are buckling up for any bumpy ride and then any high conviction calls are few in number given the inherent unpredictability when politics requires a prominent role in moving the markets.”