British pound crumbles to its lowest point, euro at 20-year lows

A woman holds British pound notes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/

LONDON, Sept 26 (Reuters) – Sterling slumped to a record low on Monday as traders rushed out on growing concern that the new government’s economic plan will strain Britain’s finances to the breaking point.

Sterling’s sharp decline helped the safe-haven US dollar hit a new two-decade high against a basket of major pairs, while the euro hit a new two-decade low against the dollar.

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

But it was the precipitous fall in the British pound that caught the attention of traders. It tumbled as much as 4.9% to a record low of $1.0327, before stabilizing around $1.0699 in early London trading, still down 1.5% on the day.

That followed a 3.6% drop on Friday, when new Finance Minister Kwasi Kwarteng unveiled historic tax cuts financed by the biggest surge in lending since 1972. Kwarteng ruled out the pound’s free fall on Sunday, saying his strategy was to focus more on long-term growth rather than short-term market reaction.

Sterling also fell 1.3% against the euro, after hitting its lowest level since September 2020 at 92.60 pence.

Kit Juckes, chief currency strategist at Societe Generale in London, said markets had a tendency to overshoot but noted two points in sterling’s decline.

“One is the loss of confidence in UK fiscal policy and that won’t help sterling,” he said. “The second is that the mini budget has allowed the British pound to be the short option against the dollar.”

The euro also hit a new 20-year low at $0.9528 as the pound’s decline spread across markets.

Sunday’s elections in Italy, in which a right-wing bloc seemed set for a solid majoritywas also in the spotlight.

The dollar was based on its recovery against the yen after the monetary intervention of the Japanese authorities last week.

It firmed up 0.3% at 143.76 yen, returning to Thursday’s 24-year high of 145.90. It fell to around 140.31 earlier in the day after Japan conducted a yen-buying intervention for the first time since 1998.

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 113.16, slightly firmer on the day.

“The dollar’s strength was largely due to strong selling in the pound,” said Saktiandi Supaat, Maybank’s regional head of forex research and strategy.

“It’s more of a risk-aversion kind of thing,” Supaat added. “Fears of a global recession have actually intensified and broadened quite a bit.”

The risk-sensitive Australian dollar briefly tumbled to $0.64845, its lowest level since May 2020, and the Canadian dollar hit a new low of C$1.3638 per dollar, its lowest level since July 2020. 2020.

China’s overseas yuan fell to a new low of 7.1728 per dollar, its lowest level since May 2020. On land, the yuan also hit a 28-month low of 7.1690.

The new lows came even as the central bank said it would 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.

Information from Dhara Ranasinghe; additional reporting by Kevin Buckland and Rae Wee; edited by

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