SYDNEY (Reuters) SYDNEY (Reuters) Sterling fell to a record-low on Monday, sparking speculation about an emergency intervention by the Bank of England, as confidence was shattered in Britain’s plan to borrow to get out of financial trouble, and panicked investors rushing in U.S. dollars.
The calamity was not restricted to the currency market, and fears that high interest rates could hinder growth also sent Asian shares to two-year lows as demand-sensitive stocks like Australia’s mining companies and car makers of Japan and Korea were hit particularly hard.
S&P 500’s futures dropped 0.8 percent and European futures dropped 0.7 percent. Two-year Treasury yields climbed above 4.3 percent, achieving an all-time high of 15. The euro sank to an all-time low of 20 years.
Related: Asian stocks fall as a result of Chinese inflation, with the Consumer Price Index (CPI) in the spotlight.
“The fluctuations over the past few trading days have been extremely intense,” said Paul Mackel the global head of FX analysis at HSBC located in Hong Kong. “It’s an excellent reminder of how rapidly the drivers for exchange rates can shift.”
The pound plummeted almost five percent at one point to break below 1985’s lows and then hit $1.0327. The moves were made worse by the lack of liquidity during the Asia session, however after falling back to $1.05 The currency is still at a loss of 77% in only two days. Options pricing is an exciting ride ahead.
“The market is currently considering the UK as being an emerging market” Michael Every, a Rabobank strategy director Michael Every in Singapore.
“And they’re not off base with regard to the policy response as well as the illusion that increasing demand instead of supply is the best way to respond to a shock on the supply side,” he said.
Related: Asian stocks fall as Powell, a rate-hike bet enthusiast, drums up speculation.
“If this continues to be the case in European trading, you’ll receive at the very least an announcement from the BOE threat (action) and…a very good chance that they will have to announce an inter-meeting increase and the size of it.”
The announcement by the British government of tax cuts has already triggered the biggest selling of gilts in the last three years on Friday. This has brought the pound down to a record low of 92.29 cents per euro.
Nothing in the Dollar’s Way
The fall in the pound is the latest frightening move as the risk-averseness of investors swells financial markets.
The Nasdaq fell nearly 5% the previous week, for the second week in a row. In the S&P 500 dropped 4.8 percent. Japan intervened in markets for currency to boost the yen. U.S. interest rate expectations have increased quickly.
Related: Tokyo stocks fall before the US jobs report comes out.
On Monday the MSCI’s broadest index for Asia-Pacific shares that are not in Japan fell 1.4 percent, bringing it to a record-breaking two-year low. It is now headed towards a decline of 11.1%. This is the biggest ever since the beginning of March in 2020. Japan’s Nikkei fell 2.6%. (T)
Later in the day, the focus will be on political leaders and policymakers’ responses to the pound’s plunge, as well as the latest round of strength in the dollar it unleashed.
Japan’s Finance Minister threatened to make a further intervention on Monday. However, the yen came under pressure and dropped around 0.6 percent to the weaker end of 144 for a dollar. [FRX/]
The central bank of China on Monday announced new measures to ease the yuan’s decline by making it more costly to bet against the currency. However, it did not affect the currency that climbed near its weekly downward limit. [CNY/]
Related: Asian stocks fall because of bad Chinese trade data and Fed jitters.
It’s all been overshadowed by Italy’s recent election of its largest right-wing political party in the wake of World War Two. Investors were pleasantly surprised by the relatively weak performance of the eurosceptic allies, but it did not help the euro.
The dollar has hit a 20-year low at $0.9528.
Gold and oil were both under pressure because of the rising greenback, gold hitting a two-1/2 year record low at $1,626. Brent crude futures falling around 1 percent to their lowest level since January, at $85.06 per barrel. [GOL/][O/R]
“As as of right today, there doesn’t appear to be anything against the dollar’s path,” said Shafali Sachdev who is the head of FX fixed income, FX, as well as commodities in Asia for Asia at BNP Paribas (OTC: BNPQY) Wealth Management in Singapore.
