Sterling collapses as investors switch to dollars

SYDNEY (Reuters) – Sterling plunged to a record low on Monday, fueling speculation about an emergency response from the Bank of England, as confidence in Britain’s plan to borrow its way out of trouble evaporated as panicked investors flocked to the United States. dollar.

Concern that higher interest rates will hurt growth has widened to hit currencies and stocks in Asia as well, with exporters from Japanese automakers to Australian miners hard hit.

Sterling fell nearly 5% at one point to $1.0327, breaking below 1985 lows. The moves were exacerbated by poor liquidity in the Asian trading session, but even after tumbling back to $1.05, the currency is still down around 7%. In just two sessions.

“You should buy the dollar as a risk-free trade. There’s nowhere else to go,” said Michael Ivry, a strategist at Rabobank in Singapore.

“The Bank of England will definitely have to step in today, at which point everyone will end up with significantly higher mortgage rates to try to stabilize sterling.”

The crash sent the dollar broadly higher, reaching multi-year highs on the Australian dollar, kiwi and yuan, and a new 20-year high of $0.9528 per euro.

In stocks, MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell 1% to its lowest level in two years. It is headed for a monthly loss of 11%, the largest since March 2020. Japan’s Nikkei Index (.N225) It fell 2.2%.

S&P 500 futures were down 0.5%.

Last week, stocks and bonds collapsed after the United States and six other countries raised interest rates and predicted pain ahead. Japan intervened in currency trading to support the yen. Investors lost faith in the management of the British economy.

Nasdaq (nineteenth) He lost more than 5% for the second week in a row. S&P 500 . Index (.SPX) It fell 4.8%.

Bonds suffered their biggest sell-off in three decades on Friday, and sterling on Monday hit a 37-year low of $1.0765 as investors believe the planned tax cuts will maximize government funding.

Sterling is down 11% this quarter.

Five-year Treasury yields rose 94 basis points last week, the largest weekly jump recorded in Refinitiv data stretching back to the mid-1980s. Treasuries also fell last week, with two-year yields up 35 basis points to 4.2140% and benchmark 10-year yields up 25 basis points to 3.6970%.

The euro fluctuated to a two-decade low of $0.9660 as the risks of war in Ukraine escalated, before settling at $0.9686.

In Italy, a right-wing coalition led by Georgia Meloni’s Brotherhood of Italy was on course for a clear majority in the next parliament, as expected. Some were encouraged by the mediocre performance of the Eurosceptic “The League”.

“I would expect a relatively small impact given that the League, the least pro-European party, appears to have come in weak,” said Giuseppe Cercil, fund manager and strategist at Anthelia in Milan.

Oil and gold stabilized after falling against the dollar’s rally last week. Gold hit a more than two-year low on Friday and bought $1,643 an ounce on Monday. Brent crude futures settled at $86.29.

Additional reporting by Danilo Masoni in Milan. Editing by Sam Holmes

Our criteria: Thomson Reuters Trust Principles.