Sterling slides to new 31-year low on Brexit worries | Reuters

LONDON Sterling slumped 2 percent to hit a 31-year low against the dollar and a 2-1/2-year trough against the euro on Tuesday as investors worried about the economic and financial fallout of Britain's vote to leave the European Union. The pound, which has borne the brunt of market concern about the economic impact of the vote, fell to $1.3022, its lowest since September 1985. That left it 13 percent below its levels before the June 23 referendum.

Reuters July 06, 2016 00:30:06 IST
Sterling slides to new 31-year low on Brexit worries
| Reuters

Sterling slides to new 31year low on Brexit worries
 Reuters

LONDON Sterling slumped 2 percent to hit a 31-year low against the dollar and a 2-1/2-year trough against the euro on Tuesday as investors worried about the economic and financial fallout of Britain's vote to leave the European Union.

The pound, which has borne the brunt of market concern about the economic impact of the vote, fell to $1.3022, its lowest since September 1985. That left it 13 percent below its levels before the June 23 referendum.

Sterling also fell against the euro to 85.48 pence per euro, its lowest level since late 2013. And against the Bank of England's trade-weighted basket of currencies, sterling fell to its weakest in more than three years.

The pound's losses accelerated after Aviva Investors, the fund arm of insurer Aviva, suspended its UK Property Trust with immediate effect. M&G, the fund management arm of insurer Prudential, also suspended trading in its 4.4 billion pound UK property portfolio and feeder fund.

On Monday, Standard Life Investments, the fund arm of insurer Standard Life, suspended its 2.9 billion pound UK real estate fund.

These suspensions raised concerns about whether foreign investors would pull out of UK's commercial property sector in large numbers, putting the currency under more pressure.

"The last time we saw this kind of action was in the financial crisis," said Mark Priest, head of index and equity market making at ETX Capital.

"Fears about the investment industry are leaching into the forex markets today, with sterling seeing heavy selling again after a few days of relative calm."

Sterling briefly trimmed losses after Bank of England Governor Mark Carney, speaking after publication of the Bank's semi-annual Financial Stability Report, said the fall in the currency should help ease the balance of payments shortfall.

"One of the most striking things for us is the fact that he (Carney) spoke quite openly about the need for sterling to adjust to act as a stabiliser, and that its weakness was necessary ... so that was actually a positive spin," said ING currency strategist Viraj Patel.

BOE CONCERNED

The BoE also expressed concern about a fall in investor demand for British assets -- which could make it harder for the country to finance its large current account deficit -- as well as trouble in commercial real estate making it harder for businesses to use their property as collateral to obtain loans.

"Given that the UK’s current account deficit was running at a clip of nearly 7 percent of GDP over the last few months, anything that slows capital inflows undermines the currency," said John Hardy, head of currency strategy at Saxo Bank.

Earlier, a survey of Britain's services sector showed uncertainty in the run-up to the referendum had slowed growth last month to a three-year low, and sent business expectations to their weakest since 2012.

But RBC Capital Markets currency strategist Adam Cole said the survey had virtually no impact on the currency, and investors would only be able to see the real effect on business confidence in July.

Analysts said with economy likely to slip into a recession, a rate cut is likely in coming months. Investors are pricing in a 25 basis point rate cut in August.

(Editing by Jeremy Gaunt and Janet Lawrence)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

The Modi paradox: At 70, his 7 deadly sins for 'liberals' are why his supporters love him
India

The Modi paradox: At 70, his 7 deadly sins for 'liberals' are why his supporters love him

Part of the phenomenon is that the PM's support base grows and gets more solidly behind him for the exact reasons a section of urban, English-speaking intelligentsia hates him

Coronavirus outbreak: Benoit Paire allowed to compete at Hamburg Open despite two positive tests
Sports

Coronavirus outbreak: Benoit Paire allowed to compete at Hamburg Open despite two positive tests

Paire said he twice tested positive while in Hamburg but then had a negative test. Paire said he was not sure if he would play at the French Open, which begins on Sunday

Rajan, Acharya may be off mark: PSU banks need strategy and focus to survive, not privatisation as remedy
India

Rajan, Acharya may be off mark: PSU banks need strategy and focus to survive, not privatisation as remedy

The PSU banks' problem is often linked to India's burgeoning fiscal deficit that needs control because pumping taxpayer money into state-run banks is fraught with risks.