London - The pound sank to a fresh 31-year low as the fallout from Britain’s vote to leave the European Union continued to reverberate through financial markets.
The British currency dropped through $1.28 on Wednesday, more than 4 US cents below levels reached the day after the UK’s June 23 referendum, while Japan’s currency climbed at least 0.6% against all 16 of its major counterparts as investors sought haven assets.
The pound has tumbled amid mounting evidence the Brexit vote is hurting confidence in the UK economy. M&G Investments suspended a £4.4bn real-estate fund on Tuesday, following on the heels of Aviva Investors and Standard Life Investments after a flurry of redemption requests. With the real estate tremors echoing the last financial crisis, there is increasing concern a failure to control the aftershocks from the referendum will propel the nation into a recession.
"There is little to stop the pound’s slide in the near term," said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London.
"History shows that broad-based downward adjustments in the currency are pronounced and drawn out."
The pound declined 0.7% to $1.2931 as of 7:58 a.m. in London on Wednesday, after reaching $1.2798, the lowest since 1985. The yen rose 0.7% against the dollar to 100.99, after climbing to 100.58, its highest since June 24.
The euro fell 0.1% to $1.1065.
The pound has been among the biggest losers from Britain’s decision to leave the EU, and almost all the analysts who have changed their forecasts since the referendum are expecting the currency to remain weak.
Of the 43 new predictions in a Bloomberg survey, all but five are for sterling to end the year at or below $1.30, with the most bearish seeing a drop to $1.16.
While a weaker currency is a boon for exporters, which may cushion some of the effect of Brexit on the economy, sterling’s continued slide may be a signal of a loss of confidence in the UK since the vote.
'Sharp hit'
"I am expecting quite a sharp reduction in investment spending, a sharp hit to the commercial property market, probably a check to consumer spending, all of which could push us towards zero or below growth," John Gieve, a former deputy governor of the Bank of England and veteran of the last crisis, said in Bloomberg Television interview on Tuesday.
The yen, which briefly strengthened through 100 per dollar in the immediate aftermath of the UK’s referendum, is being used as a refuge from the turmoil. Japanese Prime Minister Shinzo Abe said on June 28 that the government will carefully watch currency movements, and that he asked Bank of Japan Governor Haruhiko Kuroda to co-operate with Group-of-Seven nations to secure market liquidity. Japan’s Topix index of shares fell 1.8% on Wednesday.
"The yen strengthened in anticipation of further declines in Japanese stocks," said Toshiya Yamauchi at Ueda Harlow, a margin-trading services provider in Tokyo.
"Risks to further upside in the yen are growing and it may test the 100 level to see how the authorities respond."