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FOREIGN EXCHANGE

Sterling and yen weakness is throwback to 1980s

The recent multi-decade lows experienced by the pound and the yen may have different origins, but they are also a reminder that history has a habit of repeating itself.

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Photo: iStock

The UK was a very different place the last time the pound was worth so little against the dollar. It was 1985, and Vodafone had just launched the UK’s first mobile phone network, football hooliganism was rife and the Anglo-Irish Agreement had laid the groundwork for devolved government in Northern Ireland more than a decade after a previous power-sharing executive had collapsed.

Fiscal stimulus plans have raised questions about the financing of the UK’s twin deficit, also affecting the pound negatively
Thanos Vamvakidis, BofA Securities.
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In the financial system, the Bank of England (BoE) did not have operational independence and there were monetary aggregate targets in place.

But there are also similarities between then and now. This year’s industrial unrest mirrors the bitter miners’ strike that ended 37 years ago. A Conservative government lags in the opinion polls, as it did in 1985. And inflation is high.

In the US, high interest rates, expansionary fiscal policy and a strong economy fuelled a dollar bubble that was only deflated by the 1985 Plaza Accord – an agreement between France, Germany, the US, the UK and Japan to manipulate exchange rates by depreciating the dollar relative to the yen and the Deutschmark.

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