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TOKYO, Sept 26 (Reuters) – The pound sterling fell to a record low on Monday as traders rushed for the exits on the belief that the new government’s economic plan would stretch Britain’s finances to the limit.
The dizzying fall in the pound helped the safe-haven US dollar hit a new two-decade high against a basket of major peers.
The pound fell 4.9% to an all-time nadir of $1.0327, before stabilizing around $1.05405, 2.9% below the previous session’s close.
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It fell 3.6% 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 getting hammered,” said Chris Weston, research manager at Pepperstone.
“Investors are looking for a response from the Bank of England. They say it’s not sustainable.”
The euro also hit a fresh 20-year low for the dollar on simmering recession fears, as the energy crisis drags on into winter amid an escalating war in Ukraine. A weekend election in Italy was also expected to propel a right-wing alliance to a clear majority in parliament. Read more
The dollar benefited from its recovery against the yen after the shock of last week’s monetary intervention by the Japanese authorities, with investors again focusing on the contrast between a hawkish Federal Reserve and the insistence of the Bank of Japan stick to massive stimulus.
The dollar index – whose basket includes the pound sterling, the euro and the yen – reached 114.58 for the first time since May 2002 before falling back to 113.73, 0.52% more than at the end of last week.
“The poor situation in the UK is exacerbating support for the USD, (which) may rise further this week,” Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote in a report.
“If a sense of crisis in the global economy were to emerge, the USD could jump significantly.”
Europe’s common currency slipped as low as $0.9528 and last traded down 0.41% at $0.96545.
The dollar added 0.39% to 143.95 yen, continuing its rally towards Thursday’s 24-year high at 145.90. It fell to 140.31 on the same day after Japan intervened to buy yen for the first time since 1998.
On Monday, Japanese Finance Minister Shunichi Suzuki repeated that the authorities were ready to react to speculative movements in currencies. Read more
Elsewhere, the risk-sensitive Australian dollar slipped to $0.6487, its lowest since May 2020 and last traded 0.22% lower at $0.6516.
Another base currency, the Canadian dollar hit a new low at C$1.3625 per greenback, its weakest since July 2020.
The Chinese offshore yuan slipped to a fresh low of 7.1630 per dollar, its weakest since May 2020.
The People’s Bank of China said on Monday it would reinstate currency risk reserves for certain futures contracts, a move that would make betting against the yuan more expensive to slow the pace of the recent depreciation.
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Reporting by Kevin Buckland Editing by Shri Navaratnam and Sam Holmes
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