Sterling slumped to a record low on Monday, prompting speculation of an emergency response from the Bank of England, as confidence evaporated in Britain's plan to borrow its way out of trouble, with spooked investors piling in to US dollars.
The British pound's sterling drop helped lift the safe-haven U.S. dollar to a new two-decade peak while the euro hit a fresh two-decade low against the greenback.
Broadening worry that high interest rates will hurt Asia's currencies and equities too, with exporters from Japanese carmakers to Australian miners hit hard.
The pound plunged nearly 5% at one point to US$1.0327, breaking below 1985 lows. Moves were exacerbated by thinner liquidity in the Asia session, but even after stumbling back to US$1.05 the currency is still down some 7% in just two sessions.
"You've got to buy the dollar as a risk off-trade. There is nowhere else to go," said Rabobank strategist Michael Every in Singapore.
"The Bank of England is going to step in today, surely to try and stabilise sterling, at which point everyone's going to end up with massively higher mortgage rates."
The collapse sent the dollar higher broadly and it hit multi-year peaks on the Aussie, kiwi and yuan and a new 20-year top of US$0.9528 per euro .
In stocks, MSCI's broadest index of Asia-Pacific shares outside Japan was down 1% to a two-year low. It is heading for a monthly loss of 11%, the largest since March 2020. Japan's Nikkei fell 2.2%.
S&P 500 futures fell 0.5%.
Last week, stocks and bonds crumbled after the United States and half a dozen other countries raised rates and projected pain ahead. Japan intervened in currency trade to support to the yen for the first time since 1998. Investors lost confidence in Britain's economic management and fiscal policy.
The Nasdaq lost more than 5% for the second week running. The S&P 500 fell 4.8%.
Gilts suffered their heaviest selling in three decades on Friday and on Monday the pound made a 37-year low at US$1.0765 as investors reckon planned tax cuts will stretch government finances to the limit.
Sterling 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 stretching back to the mid 1980s. Treasuries tanked as well last week, with two-year yields up 35 bps to 4.2140% and benchmark 10-year yields up 25 bps to 3.6970%.
The euro wobbled to a two-decade low at US$0.9660 as risks of war escalating in Ukraine, before steadying at US$0.9686.
The risk-sensitive Australian dollar dropped to $0.64845, its lowest since May 2020, and the Canadian dollar touched 1.3638 to its U.S. counterpart, its weakest since July 2020.
China's offshore yuan slid to a new low of 7.1728 per dollar, its weakest since May 2020. Onshore, the yuan also touched a 28-month trough of 7.1690.
In Italy, a right-wing alliance was on course for a clear majority in the next Parliament, appeared to have little immediate impact.
Oil and gold steadied after drops against the rising dollar last week. Gold hit a more-than two-year low on Friday and bought US$1,643 an ounce on Monday. Brent crude futures sat at US$86.29.
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