Sterling tumbled to a fresh 37-year low on the U.S. dollar on Friday, and a 19-month trough on the euro, after weaker-than-expected retail sales figures added to worries about the health of Britain’s economy.

The pound fell more than 1% against the dollar to $1.1351, its lowest since 1985, and was last trading at $1.1403.
Most major currencies have been struggling against the dollar in recent months, moves that have been given another leg-up this week after hotter-than-expected U.S. inflation caused markets to price in aggressive rate hike from the Federal Reserve at next week’s policy meeting.

The pound has been particularly struggling, however, and the euro rose to as high as 87.71 pence on Friday, its highest level since Feb 2021. It was last up 0.39% at 87.49 pence.

Sterling’s latest drop followed Friday’s data that showed retail sales volumes slipped 1.6% in monthly terms in August – the biggest fall since December 2021 and worse than all forecasts in a Reuters poll of economists that had pointed to a 0.5% fall.

This was just the latest bad news for the British economy, which faces slower economic growth and more persistent inflation than any other major economy next year, the International Monetary Fund forecasts.

“The grinding backdrop of everything that’s going on is weighing on sterling, with the UK running these massive external deficits and the risks around the new prime minister’s policies adding to that,” said John Hardy, head of FX strategy at Saxobank.

Britain’s new leader, Liz Truss, last week announced a cap on soaring consumer energy bills for two years to cushion the economic shock of war in Ukraine with measures likely to cost the country upwards of 100 billion pounds ($115 billion).

British finance minister Kwasi Kwarteng is due to make a fiscal statement this month to explain how this will be funded, and also is expected to say how he will deliver the tax cuts promised by Truss during her campaign for leadership of the Conservative Party.

“In addition, markets are “risk-off” following Fedex’s withdrawing its forecast, and U.S. equities dropping below a key support level. In a risk-off environment, sterling is like a worse euro,” said Foley.

FedEx Corp on Thursday withdrew the financial forecast issued just three months ago, sending its shares plunging and weighing on markets more broadly.

The Bank of England will meet next week, part of a packed week of central bank meetings. Market pricing indicates a slightly higher chance of a 75-basis-point hike than a 50-basis-point jump.

“Given the (European Central Bank) hiked by 75bps, as did the Bank of Canada and as will the Fed and possibly the (Swiss National Bank), there is certainly a risk of a 50bp hike fuelling further GBP selling,” said MUFG in a note.