SYDNEY, Sept 26 — Sterling slumped to a record low on Monday, prompting speculation of an emergency response from the Bank of England, as confidence evaporated in Britain’s plan to borrow its way out of trouble, with spooked investors piling in to US dollars.
Broadening worry that high interest rates will hurt growth hit Asia’s currencies and equities too, with exporters from Japanese carmakers to Australian miners hit hard.
The pound plunged nearly 5 per cent at one point to US$1.0327, breaking below 1985 lows. Moves were exacerbated by thinner liquidity in the Asia session, but even after stumbling back to US$1.05 the currency is still down some 7 per cent in just two sessions.
“You’ve got to buy the dollar as a risk off-trade. There is nowhere else to go,” said Rabobank strategist Michael Every in Singapore.
“The BOE are going to have to step in today, surely, at which point everyone’s going to end up with massively higher mortgage rates to try and stabilise sterling.”
The collapse sent the dollar higher broadly and it hit multi-year peaks on the Aussie, kiwi and yuan and a new 20-year top of US$0.9528 per euro.
In stocks, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1 per cent to a two-year low. It is heading for a monthly loss of 11 per cent, the largest since March 2020. Japan’s Nikkei fell 2.2 per cent.
S&P 500 futures fell 0.5 per cent.
Last week, stocks and bonds crumbled after the United States and half a dozen other countries raised rates and projected pain ahead. Japan intervened in currency trade to support the yen. Investors lost confidence in Britain’s economic management.
The Nasdaq lost more than 5 per cent for the second week running. The S&P 500 fell 4.8 per cent.
Gilts suffered their heaviest selling in three decades on Friday and today the pound made a 37-year low at US$1.0765 as investors reckon planned tax cuts will stretch government finances to the limit.
Sterling is down 11 per cent this quarter.
Five-year gilt yields rose 94 basis points last week, by far the biggest weekly jump recorded in Refinitiv data stretching back to the mid 1980s. Treasuries tanked as well last week, with two-year yields up 35 bps to 4.2140 per cent and benchmark 10-year yields up 25 bps to 3.6970 per cent.
The euro wobbled to a two-decade low at US$0.9660 as risks rise of war escalating in Ukraine, before steadying at US$0.9686.
In Italy, a right-wing alliance led by Giorgia Meloni’s Brothers of Italy party was on course for a clear majority in the next parliament, as expected. Some took heart from a middling performance by eurosceptics The League.
“I expect relatively little impact considering that the League, the party with the least pro-European stance, seems to have come out weak,” said Giuseppe Sersale, fund manager and strategist at Anthilia in Milan.
Oil and gold steadied after drops against the rising dollar last week. Gold hit a more-than two-year low on Friday and bought US$1,643 an ounce on Monday. Brent crude futures LCOc1 sat at US$86.29. ¬— Reuters
Source: Malay Mail
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