Sterling fell to a record low on Monday as traders scrambled to exit on speculation that the new government’s economic plan would overstretch Britain’s finances.
The fall in the British pound pushed the safe-haven U.S. dollar to a new two-decade high against a basket of major peers.
Sterling fell as much as 4.9% to an all-time low of $1.0327 before settling near $1.05405, down 2.9% from the previous session’s close.
It fell 3.6 percent on Friday, when new Finance Minister Kwasi Kwarteng unveiled historic tax cuts funded by the biggest increase in borrowing since 1972. read more
“Sterling is absolutely getting hammered,” said Chris Weston, head of research at Paperstone.
“Investors are looking for answers from the Bank of England. They are saying this is not sustainable.”
The euro also touched a fresh 20-year trough against the dollar on recession fears, as the energy crisis moves into winter amid an escalation in the Ukraine war. Italy’s right-wing coalition was also set to win a clear majority in parliament in weekend elections. Read more
The dollar built on its recovery against the yen after the shock of last week’s currency intervention by Japanese authorities, as investors turned their attention to a dovish Federal Reserve and the Bank of Japan’s continued major stimulus. Focused on the contradiction between insistence.
The dollar index – which includes a basket of sterling, the euro and the yen – hit 114.58 for the first time since May 2002 and hit 113.73, up 0.52 percent from last week’s close.
“Weak UK conditions add to support for the USD, (which) could rise again this week,” Joseph Caparso, head of international economics at the Commonwealth Bank of Australia, wrote in a report.
“If a sense of crisis emerges about the global economy, the USD could rise significantly.”
Europe’s common currency fell as low as $0.9528, and last traded down 0.41% to $0.96545.
The dollar added 0.39% to 143.95 yen, continuing its climb back to a 24-year peak of 145.90 on Thursday. It fell to 140.31 on the same day as Japan intervened to buy the yen for the first time since 1998.
On Monday, Japanese Finance Minister Shunichi Suzuki reiterated that authorities are ready to respond to currency speculation.
Elsewhere, the risk-sensitive Australian dollar fell to $0.6487, its lowest since May 2020 and was last trading 0.22% weaker at $0.6516.
The fellow commodity currency Canadian dollar hit a fresh trough of C$1.3625 per greenback, the weakest since July 2020.
China’s offshore yuan fell to a new low of 7.1630 per dollar, the weakest since May 2020.
The People’s Bank of China said on Monday it would restore foreign exchange risk reserves for some forward contracts, a move that would make it more expensive to bet against the yuan to slow the pace of recent declines. could
