Sydney, Sept. 26 (BNA): Sterling fell 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.
The carnage was not limited to currencies, as fears that higher interest rates could hurt growth also sent Asian shares to their lowest level in two years, with demand-sensitive stocks such as Australian miners and automakers in Japan and Korea hurting.
S&P 500 futures were down 0.8% and European futures were down 0.7%. Two-year Treasury yields exceeded 4.3%, hitting a 15-year high. The euro hit a 20-year low, according to Reuters.
“The moves over the past two trading days have been very violent,” said Paul McKelle, global head of forex research at HSBC in Hong Kong. “It’s a powerful reminder of how the drivers of exchange rates can suddenly change.”
The pound fell about 5% at one point, breaking below its 1985 lows and reaching $1.0327. The moves were exacerbated by poor liquidity in the Asian trading session, but even after faltering back to $1.05, the coin is still down about 7% in just two sessions. Options pricing points to a wild path forward.
“The market is now treating the UK as if it were an emerging market,” said Michael Ivry, a strategist at Rabobank in Singapore.
“They are not wrong about policy response and naively thinking that increased demand rather than supply is how you handle supply-side shock,” he said.
“If this moves to European trade, you’ll at least get a public statement from the Bank of England threatening (action) and … a strong possibility that they have to make visits between meetings, and a big step in which – which.”
Britain’s announcement of an already unfunded tax cut led to the biggest gold sale in three decades on Friday and pushed the British pound to a nearly two-year low of 92.29 pence per euro.
Nothing like a dollar
The pound’s fall is just the latest worrying move as investor volatility has rattled global financial markets.
The Nasdaq lost more than 5% last week for the second week in a row. The S&P 500 fell 4.8%. Japan intervened in the currency markets to support the yen and US interest rate expectations rose rapidly.
On Monday, MSCI’s broadest index of Asia Pacific shares outside Japan fell 1.4% to a two-year low and is headed for a monthly loss of 11%, the largest since March 2020. Japan’s Nikkei index fell 2.6%.
Later in the day focus will turn to politicians and policy makers’ response to the pound’s decline, and to the latest round of dollar strength unleashed on it.
Japan’s finance minister threatened further intervention on Monday, but the yen once again came under pressure and fell about 0.6% to the weaker side of 144 against the dollar.
China’s central bank on Monday announced new steps to slow the yuan’s slide by making it sharply more expensive to bet against the currency, although that hardly sent the currency fluctuating close to its daily minimum.
All of this cast a shadow over Italy’s election of the most right-wing government since World War II. Some investors were relieved by the relatively weak performance of euro-skeptical coalition partners, even though it was not beneficial to the euro.
The single currency hit a 20-year low of $0.9528.
Oil and gold were pressured by the dollar’s rally, with gold hitting a two-and-a-half year low of $1,626, and Brent crude futures dropping nearly 1% to their lowest since January at $85.06 a barrel.
“So far, there doesn’t seem to be anything standing in the dollar’s way,” said Shavali Sachdev, Head of FX, Fixed Income and Commodities for Asia at BNP Paribas Wealth Management in Singapore.