Brexit:
pound plunges to 30-year lows as EU fears bite into global markets
again
Sterling
drops well below psychological $1.30 barrier to hit lowest levels
since 1985 alongside falls in oil prices, other commodities and US
Treasury bond yields
Staff and agencies
Wednesday 6 July
2016 06.24 BST
The pound sank to
three-decade lows and Asian share markets fell on Wednesday as fears
over Brexit and instability in the European Union returned with a
vengeance.
Sterling was again a
major casualty, sinking under psychological support at US$1.30 in
fast-moving trade. It hit its lowest since 1985 when it got down as
deep as $1.2565.
In wild trading
reminiscent of the fateful Friday when Britain voted to abandon the
EU, sterling shed a full US cent in a matter of minutes on Wednesday
to sink to $1.2798 at one point.
Against the
resurgent Japanese currency, sterling fell as low as 128.81 yen, its
lowest since November 2012.
Concerns about the
impact on already fragile global growth spread to commodity markets.
After oil prices shed 5% on Tuesday, Brent crude futures fell further
on Wednesday to $47.57, with US crude at $46.21 at one point.
Investors rushed to
safe-haven sovereign debt and took markets deeper into unknown
territory.
Yields on US
Treasuries, the benchmark for bonds worldwide, hit record lows out to
30 years. Investors had to pay Japan 0.27% to lend it money for 10
years.
“There’s no
inflation prospects, there’s no strong growth. The only thing we
have is uncertainty,” said Hiroko Iwaki, senior bond strategist at
Mizuho Securities.
The sudden mood
swing saw Japan’s Nikkei skid 3%, while MSCI’s broadest index of
Asia-Pacific shares outside Japan fell 1.6 percent.
Since Britain’s
shock vote to exit the EU two weeks ago, investors have been
consoling themselves with the expectation of yet more policy easing
from the major central banks.
Yet analysts, and
many at the banks themselves, have warned that the scope for
manoeuvre is strictly limited and any new steps could prove
counter-productive.
“Financial markets
appear to have taken a more realistic view around the complexity and
uncertainty characterising the global political background and its
impact on already lacklustre economic growth,” wrote analysts at
ANZ in a note.
“This suggests the
tug-a-war between more central bank support and economic fundamentals
is going to increase, driving market volatility.“
Against the yen,
sterling fell below 131 for the first time since late 2012, while the
euro scored a two and a half year high of 85.30 pence.
The yen benefited
broadly as a traditional safe harbour and climbed to 100.94 per US
dollar. Likewise, spot gold hit its highest since early 2014 at
$1,370.60.
Dealers said there
was no one event behind the moves but rather an accumulation of
negative factors.
Three British
commercial property funds worth about £10bn suspended trading as
asset prices plunged, while the Bank of England had to take action to
ensure local banks kept lending.
Across the channel
shares in Italy’s banks tumbled, shaking the financial foundations
of the eurozone’s third-largest economy.
“Italy faces a
severe crisis that is exponential. This is not gradual and not
linear,” said Francesco Galietti, head of the Policy Sonar risk
consultancy and a former finance ministry official. “The immediate
trigger is the banking crisis.”
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