Sterling collapses as investors fly into dollars

Sterling slumped to a record low on Monday as investors piled in to dollars and out of almost everything else, spooked by the prospect of high interest rates and poor growth ahead.

The pound plunged nearly 5% at one point to $1.0327, breaking below 1985 lows as confidence in Britain's economic management and assets evaporated. Even after stumbling back to $1.05, the currency is down 7% in two sessions.

"It's a case of shoot first and ask questions later, as far as UK assets are concerned," said National Australia Bank's head of currency strategy, Ray Attrill in Sydney.

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 $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%.

The dollar made new highs on sterling, the euro and the Aussie in the thin early hours of the Asia day. [FRX/]

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 the yen. Investors lost confidence in Britain's economic management.

The Nasdaq lost more than 5% for the second week running. The S&P 500 fell 4.8%. [.N]

Gilts suffered their heaviest selling in three decades on Friday and on Monday the pound made a 37-year low at $1.0765 as investors reckon planned tax cuts will stretch government finances to the limit. [GB/]

Sterling is down 11% this quarter. [GBP/]

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%. [US/]

The euro wobbled to a two-decade low at $0.9660 as risks rise of war escalating in Ukraine, before steadying at $0.9686.

In Italy, a right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course for a clear majority in the next parliament, as expected. Some took heart from a middling performance by eurosceptics The League.

"I expect relatively little impact considering that the League, the party with the least pro-European stance, seems to have come out weak," said Giuseppe Sersale, fund manager and strategist at Anthilia in Milan.

Oil and gold steadied after drops 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 crude futures sat at $86.29.[GOL/][O/R]