Pound continues fall with safe haven’s role uncertain

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Gloomy economic data out of the U.K. is dragging the pound lower... It fell to about 1.49 against the U.S. dollar on Wednesday, the lowest in nearly two and a half years. Once regarded as a safe haven currency, it has depreciated by two thirds of its purchasing power over the past 30 years. How come its past glory is fading? 

Ever since the new year started, the sterling can not help it but slump. Ratings agency Moody's downgraded the U.K. from triple A to AA1 on February 22nd, and the currency dropped even steeper after that. Within three months, it dropped 7 percent against the greenback. On March 12th, the pound hit a fresh record low since June 2010.

Local media say that the British today have to pay three times the money to get the same amount of goods compared to 30 years ago. However, they don't see much impact yet on their daily lives as new currency options are emerging.

"That doesn’t make a lot of difference to me, as it happens I have money in Euros and dollars as well because I gamble, so I juggle the currencies, it doesn’t really bother me too much. But I can see that important stuff is going to cost more isn’t it? "

A professor from the London School of Economics says, three factors contribute to the currency's depreciation: expectations for a credit rating downgrade and quantitative easing, and the pound being under pressure against dollars' valuation.

Moreover, the professor also believes that the Sterling has been overvalued for the past decade and now the bubbles are breaking.

"I think the British pound is pretty close to where its long term equilibrium value should be, if anything the pound in the 2000s was somewhat overvalued , and if you look at the prices in the UK, they were a little bit unsynchronised with international process, so the current level of the pound seems more or less right."

Ever since Europe's sovereign debt crises has flared up, the sterling did strengthen somewhat last year, as financial flows sought a safe haven outside the Euro area. However, with recent poor growth figures, relatively high inflation and stubbornly high public borrowing, speculators are reducing their net short position on the sterling.