Concerns over Britain’s economic prospects led to the pound sliding about five percent against the greenback last month.
The last time the pound fell as much against the dollar was in October 2016 in the wake of the Brexit referendum.
And now traders are betting on sterling hitting parity with the dollar, with Chris Turner, ING head of currency strategy, saying the outcome was “definitely within the realms of possibility this year”.
He said: “It’s a very difficult environment for sterling.
These sales are both equities and gilts at the same time, [that] smacks of a ‘sell UK’ mentality.
In the bond markets, there are some concerns developing about the UK’s fiscal profile.”
The pound lost 4.6 percent against the dollar last month.
It has fallen by nearly 15 percent this year, fuelled by concerns about slowing growth in the economy and inflation soaring into double digits.
Sterling fell against the dollar to its lowest level since March 2020.
Currencies around the world have been falling sharply against the dollar, with the euro also down heavily on Thursday.
Analysts say a combination of inflationary pressures, economic weakness and uncertainty about the policies of the next prime minister has made the pound especially vulnerable.
UK inflation rose to its highest in 40 years in July, hitting 10 percent. It is predicted to climb even higher and squeeze pay packages further.
Viraj Patel, the global macro strategist at Vanda Research, said: “It seems like a bit of a perfect storm now for the pound.
“There’s also a Liz Truss risk premium starting to get priced in.
Clearly, the market is not responding well to some of the policies Truss has announced, especially the funding of the twin deficit in the UK.”
August was also the sterling’s worst month against the euro since May 2021.
It recovered 0.4 percent on Thursday to 86.19 pence per euro, after earlier hitting its lowest in two months.
The pound’s problems have been compounded by a strengthening dollar.
The US dollar index, which measures the greenback against a basket of currencies, was last up 0.9 percent at 109.74. It earlier reached a new, 20-year high of 109.99.
The greenback also hit a 24-year high against the Japanese yen earlier on Thursday, boosted by the ever-widening gap between the yields on US and Japanese Government debt.
Michael Hewson, chief markets analyst at CMC Markets, said: “It’s not just sterling weakness – it’s a dollar strength story.
“Sterling has its problems, but they are not unique to it – high inflation, surging energy prices and falling disposable incomes.”