The Pound slips to the lowest level against the US Dollar since 1985

On the 30th anniversary of 'Black Wednesday' when Sterling crashed out of the Exchange Rate Mechanism, Sterling has dipped to its lowest level versus the US Dollar since 1985

Microsoftteams Image (6)
Jason Hollands
5 minutes
Published: 16 Sept 2022 Updated: 16 Sept 2022

Jason Hollands, Managing Director of online investment service Bestinvest, comments:

"Today marks the 30th anniversary of Black Wednesday, when the Pound crashed out of the Exchange Rate Mechanism – a system that linked European currencies as a precursor to monetary union – after the Bank of England had spent billions of reserves trying to defend the Pound. At the time it was a humiliating moment for the then Chancellor of the Exchequer, Norman Lamont, but in the aftermath the UK economy ultimately flourished, in large part due to having greater control over monetary policy outside of the constraints of ERM and monetary union.

"It's ironic that on such an anniversary, the Pound has now dipped to $1.14 versus the US Dollar - a level last seen way back in early 1985. There are of course a variety of factors that drive exchange rates and this year has seen the Dollar strengthen significantly versus the Pound, the Euro and the Yen as the US Federal Reserve has been more aggressive in front loading its interest rate hikes than other central banks and is less exposed to the impact of high energy prices than European economies.

"Currency weakness is a double-edged sword. It is clearly bad news for anyone planning to visit the US in the near future and it adds to inflation pressures in so far as it pushes up the cost of imports on goods or commodities priced in Dollars e.g. oil. However, on the flip side it can make some domestic exporters more competitive internationally.

"For investors, the weakness of the Pound is something they need to be acutely aware of at the moment. For UK-based investors, the strengthening of the Dollar has helped mask underlying losses on US shares and global equity funds this year. While the S&P 500 Index of large companies has declined in capital terms by -18% since the start of the year (to 15/9/22), in Pound terms the decline has been just -3.5% because gains made on the Dollar have helped offset share price declines.

"But for those thinking of adding to their investments, care needs to be taken about using much weakened Pounds to purchase still relatively expensive US shares. While the Dollar may well climb even higher in the near term, this strong trend won’t go on for ever and could reverse once the markets decide that the Fed has reached the end of its hiking cycle.

"Closer to home, UK large-cap companies that do business globally have very high Dollar earnings and should not therefore be seen as a proxy for the domestic economy which is clearly facing headwinds. In fact over 70% of the revenues of the FTSE 100 are made outside of the UK. As those overseas revenues – much of which are in US Dollars - are translated back into Pounds, this could boost UK reported profits and dividends.

"For those contemplating new investments with their depressed Pounds, the good news is that UK equity valuations are attractive at current levels with the FTSE 100 trading at a 12-month forward Price/Earnings multiple of 9.4 times earnings but with a 4.1% forward dividend yield. This is well below Europe ex UK (12.1 times forward P/E and 3.4% yield), the US (on a 16.9 times P/E multiple and 1.7% yield) and Japan (12x P/E multiple and 2.5% yield). UK equities continue to offer a yield premium over UK government bonds (ten year gilts are yielding 3.14%) and, by the way, older investors may remember that prior to the global financial crisis, bond yields were usually higher than those on equities.

"Boring old UK large caps have not been high on the radar of investors for many years now, lacking exposure to exciting stuff like tech and social media companies. But now might be a time for a rethink as UK large cap indices have an abundance of exposure to energy, financials and consumer staples shares. These sectors are well positioned in the current environment of high energy prices and with rising interest rates creating opportunities for margin expansion at banks. Consumer staples companies – firms that make day-to-day stuff we will buy whether the economy is in the doldrums or in rude health – should prove resilient at a time when squeezed households are having to cut down on discretionary spending."

About Bestinvest

Bestinvest is a multi-award-winning, digital investment platform and coaching service for people who choose to make their own investment decisions but with the support of tools, insights and qualified professionals. It offers access to thousands of funds, investment trusts, ETFs and shares through a range of account types, including an Individual Savings Account, a Junior ISA for children, a Self-Invested Personal Pension and General Investment Account.

Alongside providing investors access to an extensive choice of investments, Bestinvest also offers a wide range of ready-made portfolios for people seeking a managed approach that suits their risk profile, saving them the need to select and monitor their funds themselves. These include a highly competitively priced ‘Smart’ range that invests through low-cost passive funds, as well as an ‘Expert’ range that invests with ‘best-of-breed' managers. 

Bestinvest provides investors with a unique range of new features to help people better manage their long-term savings, including free investment coaching from qualified financial planners, low-cost fixed fee advice packages and advanced tools to help people plan goals and monitor progress towards achieving them.

Bestinvest is part of Evelyn Partners, the UK’s leading wealth management and professional services group created by the merger of Tilney and Smith & Williamson in 2020. Evelyn Partners is trusted with the management of £59.1 billion of assets (as of 31 December 2023) by its clients, who are private investors, family trusts, entrepreneurs, businesses, charities, financial advisers and other professional intermediaries.

Bestinvest is a trading name of Evelyn Partners Investment Management Services Limited, which is authorised and regulated by the Financial Conduct Authority.

For more information, please visit