A woman holds British pound notes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/
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TOKYO, Sept 26 (Reuters) – Sterling fell to a record low on Monday as traders scrambled for the exits on speculation that the government’s new economic plan will stretch Britain’s finances to the limit.
The sharp fall in the British pound helped the safe-haven U.S. dollar hit a new two-decade high against a basket of major peers.
Sterling fell as much as 4.9% to a record low of $1.0327, before settling around $1.05425, down 2.9% from the close previous
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It fell 3.6% on Friday, as new Finance Minister Kwasi Kwarteng unveiled historic tax cuts funded by the biggest increase in borrowing since 1972. read more
“Sterling is absolutely taking a nosedive,” said Chris Weston, head of research at Pepperstone.
“Investors are looking for a response from the Bank of England. They say this is not sustainable.”
The euro also touched a new 20-year high against the dollar on fears of a simmering recession as the energy crisis stretches into winter amid an escalation in the Ukraine war. Weekend elections were also scheduled in Italy to propel a right-wing alliance to a clear majority in parliament. Read more
The dollar built on its recovery against the yen after the shock of monetary intervention by Japanese authorities last week, as investors refocused on the contrast between a hawkish Federal Reserve and the insistence of the Bank of Japan to pursue massive stimulus.
The dollar index – whose basket includes sterling, the euro and the yen – hit 114.58 for the first time since May 2002 before falling to 114.02, down 0.78% more than the end of last week.
“The dollar’s strength was largely due to the strong sell-off in sterling,” said Saktiandi Supaat, regional head of currency research and strategy at Maybank.
“It’s more of a risky thing,” Supaat added. “Fears of a global recession have intensified and become quite widespread.”
Europe’s shared currency fell as low as $0.9528 and last traded up 0.71% at $0.9623.
The dollar rose 0.54% to 144.175 yen, continuing its climb toward Thursday’s 24-year high of 145.90. It fell to 140.31 that same day after Japan launched a yen-buying intervention for the first time since 1998.
On Monday, Japanese Finance Minister Shunichi Suzuki reiterated that the authorities were ready to respond to speculative moves in the currency. Read more
Elsewhere, the risk-sensitive Australian dollar fell to $0.64865, its lowest level since May 2020, and traded 0.6% weaker at $0.6491.
The Canadian dollar hit a new high of C$1.3636 per greenback, its weakest since July 2020.
China’s offshore yuan fell to a new low of 7.1728 per dollar, the weakest since May 2020.
On the ground, the yuan also hit a 28-month low of 7.1690, just below the day’s bearish trading limit set by the People’s Bank of China.
The new lows came even as the central bank said on Monday it will restore foreign exchange risk reserves for some forward contracts, a move that would make bets against the yuan more expensive and slow the pace of its recent depreciation.
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Reporting by Kevin Buckland; Additional reporting by Rae Wee; Edited by Shri Navaratnam, Sam Holmes and Ana Nicolaci da Costa
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