Yahoo Finance Exchange rates: Pound at its lowest against dollar since March 2020
The pound is at its weakest level since March 2020 as traders bets on further hawkish interest rate rises from the Federal Reserve next month boosted the dollar.
Sterling was trading at $1.176 against the greenback in mid-morning trade on Tuesday, driven by the deteriorating economic outlook.
Sterling's fall follows a dire forecast from Citigroup (C), which expects UK inflation to reach 18.6% next year for the first time since 1976 as energy prices rocket amid the cost of living crisis.
Citi's estimates were based on forecasts for the retail energy price cap, which analysts expect to rise to close to £6,000 in April from £1,971 currently.
The last time UK inflation was higher than 18.6% nearly half a century ago when an oil supply shock that devastated the global economy left Britain seeking a bailout from the International Monetary Fund.
Read more: Oil prices slump on stronger dollar and global recession fears
Meanwhile another jump in European gas prices after Gazprom (GAZP.ME) said it would carry out unscheduled maintenance work on the Nord Stream One pipeline has also added further pressure.
European gas prices now trade around 15 times their average price of the last ten years, and Belgian prime minister Alexander De Croo warned the continent faces around five to 10 tough winters.
The jitters saw the euro sink to a fresh 20-year low as surging gas prices fuel concerns over the eurozone economy.
The simple currency fell as much as $0.991 against the dollar on Tuesday, its weakest point since 2002.
"Yesterday’s [Monday] surge in the US dollar to new 20-year peaks against the euro, appears to suggest that investors are becoming increasingly concerned that the Federal Reserve may well not pivot on monetary policy next year," Michael Hewson, chief market analyst at CMC Markets said.
Watch: How does inflation affect interest rates?
