The Governor of the Bank of England is being urged to intervene to reassure markets after the pound has fallen to its lowest level against the US dollar since decimalisation in 1971.
In early Asia trade, sterling fell by more than 4% to $1.03 before regaining some ground to around $1.05.
That came after UK Chancellor Kwasi Kwarteng unveiled historic tax cuts funded by huge increases in borrowing.
The pound has also been under pressure as the dollar has been boosted by the US central bank continuing to raise interest rates.
There is now speculation that the Bank of England could be forced to increase interest rates for the second time in a week to calm global markets.
Strong dollar
The BBC reports that the euro also touched a fresh 20-year-low against the dollar in morning Asia trade amid investor concerns about the risk of recession as winter approaches with no sign of an end to the energy crisis or the war in Ukraine.
Peter Escho, the co-founder of investment firm Wealthi, told the broadcaster: "All currencies are getting sold off against the US dollar, so there is a large element of US dollar strength.
"But with the pound, it has really been exacerbated by news that the new government will be cutting taxes, which is inflationary.
"Add to that recent energy subsidies and news that the Bank of England might need to have an emergency rate-hike meeting, this all results in a sense of panic."
If the pound stays at this low level against the dollar, imports of commodities priced in dollars, including oil and gas, will be more costly. Other goods from the US could also be considerably more expensive and British tourists visiting America will find that their holiday money does not go as far as before sterling's slide.
Rates rise
Bank of England Governor Andrew Bailey - who announced an interest rate hike just five days ago - is being urged to step in to ease market fears ahead of a crucial decision on Britain’s credit rating next month.
Britain’s sovereign outlook is currently deemed to be stable at the three main rating agencies – S&P, Moody’s and Fitch – but “the risk of a possible shift to a negative outlook will come when the ratings are reviewed” on October 21 and in early December, analysts at ING warned.
The Telegraph said a downgrade would further increase borrowing costs, which have reached their highest level since 2011 and the wake of the financial crisis.
Analysts at Deutsche Bank asserted on Friday that Threadneedle Street needed to carry out a “large rate hike” as early as this week to “regain credibility with the market”.
ING added: "Investors will take great interest in what the rating agencies have to say about UK fiscal plans.”
FTSE100
The FTSE 100 opened with an 11-point increase this morning, at 7,029 points, following Friday's 140-point drop.
Companies reporting today
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