Thu, Jul 07, 2016 - Page 10 News List

British pound falls to new 31-year low

ASIAN TRADING:UBS Wealth Management strategist Geoffrey Yu said that Asian investors reacted negatively to the news of a suspension of trading in property funds

Reuters, LONDON

The British pound yesterday slumped to a new 31-year low, dipping below US$1.28 at one point in Asian trading, as investors shunned the currency in the fallout of the country’s vote to leave the EU.

The pound fell to as low as US$1.2798, its lowest since June 1985, before recovering to about US$1.299 in London trade as Britain’s blue-chip FTSE 100 stock index opened higher.

That still left the pound 13 percent below its levels before the June 23 referendum, and about 0.2 percent down on the day.

Against the euro, sterling hit a three-year trough, trading as weakly as £0.8629 per euro before climbing back to about £0.8551, which was still down 0.6 percent on the day.

Worries about financial stress in the aftermath of the vote for Brexit have grown in the past two days as three of Britain’s biggest property funds suspended trading following increases in the number of investor redemptions since the referendum.

The latest of these was M&G Investments Ltd, the fund management arm of insurer Prudential PLC, which said it was suspending trading in its US$5.7 billion UK property portfolio and feeder fund after the London market close on Tuesday.

“Clearly Asia came in and didn’t like what it saw in the news flow, with the suspension of trading in these property funds,” UBS Wealth Management currency strategist Geoffrey Yu said, adding that many international investors have large exposures to the UK property market.

The Bank of England (BoE) on Tuesday 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.

Next week the bank is to make a decision on interest rates, which are already at record lows.

Investors are pricing in a 25 basis point rate cut next month, but many say that could come next week.

A poll of more than 60 foreign-exchange strategists on Tuesday forecast that the pound would be at US$1.27 by year end from Monday’s close of US$1.3 on Tuesday.

“The next catalyst for a sterling sell-off could come from the Bank of England next week,” BNP Paribas SA strategists wrote in a research note.

“The market is still likely under-pricing BoE easing, with our economists forecasting a 25 basis point rate cut next week followed by a 25 basis point cut at the August meeting and £100 billion worth of quantitative easing, including corporate bonds, to be announced by the November meeting,” they wrote.

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