As the dollar surges on global exchange markets, the pound drops to its lowest value on record

Using a measure called the broad effective exchange rate, a measurement of a currency’s value against a basket of their major trading partners, the pound has crashed to its lowest level on record.

The pound is now weaker than at any time during the Brexit process, as well as what it was was during the last global financial crisis in 2008-2009.

As I write this article, the pound is currently trading at €1.06 and $1.14. That is a significant drop compared to €1.19 and $1.29 just one month ago. With the government promising a huge monetary stimulus in response to the coronavirus induced economic crisis, investor confidence in the pound is at an all-time low.

Whilst a weak currency comes with one set of problems, one that is too strong comes with another. That is the problem which the US is currently facing as the dollar surges on global exchange markets. Demand for the dollar, often seen as a safe-haven for investors, has increased dramatically as fears mount over the extent of the economic fallout from Covid-19.

With the global economic conditions changing from day to day, it is almost impossible to predict the long-term effect of these extreme fluctuations in global exchange rates. As we speak, international trade is the least of any government’s concerns, but were the changes to remain once we emerge from the other side of Covid-19, it could make economic recovery a lot more difficult.

THINK LIKE AN ECONOMIST!

Q1. What is meant by the term exchange rate?

Q2. Explain why monetary stimulus from a central bank is likely to lead to a depreciation in the exchange rate.

Q3. With the use of a diagram, show the impact of the increased demand for the dollar on the equilibrium exchange rate.

Q4. Discuss the negative impact that an appreciating exchange rate might have on America’s ability to recover from the economic fallout caused by Covid-19.

Click here for the source article

TheCuriousEconomist

Recent Posts

China’s Economy Grows 5.4% — But Can It Withstand Trump’s Tariff Tsunami?

China’s economy started 2025 with stronger-than-expected momentum, growing by 5.4% in Q1—comfortably above forecasts of…

5 days ago

U.K. Government Seizes Control of British Steel Plant

It’s a dramatic move—but one the U.K. government believes is essential for national economic security.…

2 weeks ago

U.S. Tariffs on China Surge Past 100% as Trump Escalates Trade War – but why?

A new chapter in the U.S.-China trade war is unfolding—and it’s one that economists fear…

2 weeks ago

Can Defense and Housing Turn the Tide on Sluggish GDP Growth in the UK?

The U.K. economy is still stuck in low gear. The Office for Budget Responsibility (OBR)…

4 weeks ago

PepsiCo Plans $1.95 Billion Poppi Acquisition

PepsiCo is planning to acquire prebiotic soda brand Poppi for $1.95 billion, marking a major…

1 month ago

South Africa Unveils $54.5 Billion Infrastructure Plan to Boost Growth

South Africa has announced a three-year, 1 trillion rand ($54.5 billion) public infrastructure plan aimed…

1 month ago