British Pound Hits All-Time Low Against Much Stronger Dollar

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NEW YORK – The pound sterling fell to an all-time low against the dollar on Monday as investors feared Britain’s new economic plan could hurt the country’s finances, while the Bank of England said that she was watching the financial markets « very closely » following sudden movements in asset prices.

The dollar, helped by the decline of the pound sterling and a new low of 20 years for the euro, reached a high in two decades against a basket of six comparable currencies.

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In Japan, the authorities reiterated that they were ready to respond to speculative currency movements, after their intervention last week to support the yen for the first time since 1998.

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The pound fell 4.9% during Asian trading to an all-time low of $1.0327, adding to Friday’s 3.6% plunge after the unveiling of the new finance minister’s historic tax cuts , Kwasi Kwarteng, financed by the biggest increase in borrowing since 1972. British government bond prices have collapsed.

« UK markets are exploding again in the wake of the Truss administration’s muted fiscal largesse delivered on Friday to a bond market that loathes any measure that stokes inflation risk and increased debt issuance » , said Derek Holt, head of capital markets. economy at Scotiabank.

The pound had largely rebounded from its overnight losses as traders believed the BoE could take emergency action to stem the currency’s slide, but fell again after BoE Governor Andrew Bailey , said the central bank was monitoring the markets, but did not signal any immediate action.

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« The communication may have disappointed some of the population who are potentially looking for intervention from the Bank of England, » said Bipan Rai, North American head of FX strategy at CIBC Capital Markets.

The British pound was last down 1.5% at $1.069.

« Market reactions show investors have lost faith in the government’s approach, creating a level of volatility that puts the pound on par with some emerging market peers, » said Fiona Cincotta, senior financial markets analyst at City. Index.

“There is a good chance that the BoE will now be forced to hike rates aggressively at the next meeting in November if an emergency intervention is not made before then,” she said.

The euro also hit a new 20-year low at $0.9528 and was last down 0.81%.

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As of 3:10 p.m. Eastern Time (1910 GMT), the dollar was up 0.804% at 114.05 against a basket of peer currencies, after hitting 114.58, its strongest since May 2002.

« The focus is on the pound, but the dollar story is much broader and that’s the part that doesn’t help, » said Seema Shah, chief strategist at Principal Global Investors.

The dollar strengthened 0.84% ​​to 144.585 yen, heading back towards Thursday’s 24-year high at 145.90. It fell to around 140.31 on the same day after Japan intervened to buy yen for the first time in over 20 years.

Japan is estimated to have spent around $25 billion in this intervention of selling dollars and buying yen, according to estimates by Tokyo money market brokerage firms.

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China’s offshore yuan slipped to a fresh low of 7.1728 to the dollar, its weakest since May 2020. Onshore, the yuan also hit a 28-month low at 7.1690.

The new lows came even as the central bank announced it would restore currency risk reserves for some futures, a move that would make betting against the yuan more expensive and slow the pace of its recent depreciation.

The risk-sensitive Australian dollar touched $0.6438, its lowest since May 2020, and was last down 1.02%.

(Reporting by John McCrank in New York; Additional reporting by Dhara Ranasinghe in London; Editing by Chris Reese and Marguerita Choy)



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