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Why is the pound dropping against the dollar and why is the dollar stronger?

The pound has sunk to a record low against the dollar, after Liz Truss’s new government announced fresh tax cuts, with Chancellor Kwasi Kwarteng suggesting further cuts are on the way.

As of Monday, September 26, the pound was equal to $1.04.

While many people see the pound falling in global-exchange markets as something that largely only affects how much they can spend abroad, it also affects household finances.

This is because a lower-value pound means importing produce to the UK gets more expensive.

For example, oil is a key import in the UK and is priced in dollars. This means that filling up your car will likely be more expensive.

Other items that are made abroad may also rise in price, such as smartphones and laptops, or products that have parts imported from abroad, like cars or other technology.

Why is the pound falling against the dollar?

The pound was already falling in value against the dollar over the past few weeks, partly because of the strength of the US currency.

However, the current record low was sparked by Kwarteng’s mini-budget, which included a number of big tax cuts.

It’s believed that there are concerns the tax cuts will not be fully funded, pushing the Bank of England into further debt.

In 2022, the pound has fallen further against the dollar than other global currencies.

The value of any currency is decided by its demand, meaning that demand for sterling is currently very low.

Demand is influenced by a number of factors, including the strength of the economy, national savings, the price of goods, and state finances, like how much debt the Government is in.

Why is the dollar strong?

The American dollar is often used to value against other currencies because the US has such a large and usually strong economy.

The US has proven itself to be a reliable source of economic growth. In addition, the UK has strong trade associations with the US, which is why the two currencies are often compared.