Pound went on a wild ride close to dollar parity in 2022

Bloomberg

Three prime ministers, four finance ministers and one ill-fated budget dragged the pound within an inch of parity versus the US dollar in 2022.
It was a wild ride for the currency, which suffered as political chaos engulfed the UK throughout the year. But everything went into overdrive in September, when the government’s gamble on a huge tax giveaway backfired, investors dumped sterling and UK bonds, and the Bank of England was forced to intervene to prevent a gilt market crash.
As the turmoil unfolded, sterling was being compared to an emerging-market currency and the UK’s long standing credibility on international markets was coming undone.
Now, even with the worst past, it will be stuck in a weak trading range as the country embarks on a much-needed repair job on its economy and finances. Strategists and portfolio managers expect it to stay between $1.10 and $1.30 for some time.
“Ever since the Brexit vote we’ve always called sterling a bit of a ‘basket-case’ currency, in that it follows growth much more closely than rate differentials,” said Eva Sun-Wai, fund manager at M&G Investment Management, whose Global Macro Bond Fund has been short the currency for most of the year.
“And if we are coming into a very steep contraction and our growth is worse than other regions, that will hurt.”
The pound, which opened the year at $1.35, dropped to a record-low $1.035 on September 26, just days after the disastrous mini-budget. Ultimately, the reverberations through the currency and gilt markets forced the government into a u-turn and led to the demise of Liz Truss as prime minister.
A new leader, Rishi Sunak, has kicked off a more austere fiscal program, and the pound has recovered some ground.
It’s currently trading around $1.20-$1.23, well above September’s lifetime low, but has been left battered and bruised by its annus horribilis. In addition, the UK still faces long-term imbalances and underwhelming economic growth, which will limit sterling’s upside. The expected new range continues a long-term downward trend for the currency. Its average in the five years before the 2016 Brexit vote was roughly $1.59.