Pound tumbles as investors fly to dollar

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  • The pound sterling hits a record high; risk of reaction from the BOE
  • Euro down 1%; The Aussie, Kiwi and Yuan hit multi-year lows
  • S&P 500 futures fall 0.6%

SYDNEY, Sept 26 (Reuters) – The pound fell to a record high on Monday, sparking speculation of an emergency response from the Bank of England, as confidence evaporated in Britain’s plan to borrow to get out of trouble, with frightened investors rushing to the United States. dollars.

Growing fears that high interest rates could hurt growth also hit Asian currencies and equities, with Japanese automakers’ exporters to Australian miners being hit hard.

The pound plunged nearly 5% at one point to $1.0327, dropping below 1985 lows. The moves were exacerbated by weaker liquidity in the Asian session, but even after stumbling to $1.05, the currency is still down around 7% in just two sessions.

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“You have to buy the dollar as a risk off trade. There’s nowhere to go,” said Rabobank strategist Michael Every in Singapore.

“The BOE is surely going to have to step in today, at which point everyone is going to end up with massively higher mortgage rates to try to stabilize the pound.”

The collapse sent the dollar higher overall and it hit multi-year highs on the Aussie, Kiwi and Yuan and a new 20-year high of $0.9528 per euro.

In equities, MSCI’s broadest non-Japan Asia-Pacific equity index (.MIAPJ0000PUS) fell 1% to a two-year low. It is heading for an 11% monthly loss, the largest since March 2020. The Japanese Nikkei (.N225) fell 2.2%.

S&P 500 futures fell 0.5%.

Last week, stocks and bonds tumbled after the United States and half a dozen other countries raised rates and forecast trouble. Japan intervened in currency trading to support the yen. Investors have lost faith in Britain’s economic management.

The Nasdaq (.IXIC) lost more than 5% for the second week in a row. The S&P 500 (.SPX) fell 4.8%.

Gilts suffered their biggest selloff in three decades on Friday and on Monday the pound hit a 37-year low of $1.0765 as investors believe planned tax cuts will stretch public finances to the limit.

The British pound is down 11% this quarter.

Five-year gilt yields rose 94 basis points last week, by far the biggest weekly jump recorded in Refinitiv data dating back to the mid-1980s. Treasuries also fell last week, with two-year yields up 35 basis points to 4.2140% and benchmark 10-year yields up 25 basis points to 3.6970%.

The euro hit a two-decade low at $0.9660 as war risks mount in Ukraine, before stabilizing at $0.9686.

In Italy, a right-wing alliance led by Giorgia Meloni’s Brothers of Italy party was on track to secure a clear majority in the next parliament, as expected. Some rejoiced at a mediocre performance by the eurosceptics of La Ligue.

“I expect a relatively small impact given that the League, the less pro-European party, seems to have come out weak,” said Giuseppe Sersale, fund manager and strategist at Anthilia in Milan.

Oil and gold stabilized after declines against the rising dollar last week. Gold hit a more than two-year low on Friday and bought $1,643 an ounce on Monday. Brent futures settled at $86.29.

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Additional reporting by Danilo Masoni in Milan; Editing by Sam Holmes

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