"Is Parity Imminent?" British Pound Plummets... Dollar Shows Ultra-Strong Performance

[Asia Economy New York=Special Correspondent Joselgina] Following the UK government's announcement of a tax cut plan, the pound sterling hit an all-time low against the dollar on the 26th (local time), continuing turmoil in the financial markets. The dollar index, which represents the value of the dollar against the six major currencies, reached its highest level in 20 years.

According to economic media CNBC and others, the pound's exchange rate fell about 5% that day, briefly hitting an all-time low of 1.03 dollars during trading. This is lower than the previous low of 1.05 dollars on February 26, 1985.

This weakness in the pound is interpreted as a consequence of the global tightening and strong dollar trend, combined with the impact of the ?45 billion tax cut plan unveiled last week by Prime Minister Liz Truss's cabinet. The market, concerned about deteriorating fiscal soundness following the largest tax cut policy in 50 years, saw a wave of pound sell-offs.

The pound, which had briefly risen to 1.09 dollars that day, fell back as expectations for an emergency rate hike by the Bank of England (BOE) were dashed, currently trading around 1.06 dollars. BOE Governor Andrew Bailey stated in a press release, "We will not hesitate to raise interest rates as much as necessary to achieve the 2% inflation target," but confirmed that a decision will be made at the next meeting scheduled for November 3. In the bond market, the yield on the UK 10-year government bond surpassed 4% for the first time since 2010.

Concerns are spreading that the pound could reach parity with the dollar, following the euro, meaning '1 dollar = 1 pound.' City analyst Vasileios Gkionakis noted, "It could trade between 1.05 and 1.1 dollars in the coming months," adding, "If it falls further, the possibility of parity increases." The pound has depreciated more than 22% against the dollar since the beginning of this year.

The global strong dollar trend continues. The dollar index, representing the dollar's value against six major currencies, reached 114.6 during trading, marking a 20-year high. The euro also fell to its lowest value against the dollar in 20 years that day.

With the Federal Reserve (Fed) expected to continue its aggressive rate hikes, the dollar's super strength is likely to persist for the time being. This could be a negative factor for multinational companies with a large proportion of overseas earnings. Michael Wilson, Chief Equity Strategist at Morgan Stanley, warned in a report that day, "Historically, a strong dollar has led to financial or economic crises," adding, "If there is a time to be cautious about what might collapse, it is now."

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