Pound at 31-year low as investors seek safe assets

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, on October 12, 2010.
A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, on October 12, 2010.PHOTO: REUTERS

TOKYO • The pound has sunk to its weakest in more than three decades as Britain's vote last month to leave the European Union sent investors seeking haven assets, boosting the yen and pushing global bond yields to record lows.

The British currency surpassed lows reached in the immediate aftermath of the country's June 23 referendum, while Japan's currency climbed at least 1 per cent against all 16 of its major counterparts.

The 10-year United States Treasury yield fell to a record low, while yields on longer-dated Japanese government bonds sank to unprecedented levels.

"The yen's gain comes as investors see less reason to buy the US dollar as there is no end in sight for the downside to the pound and bond yields," said Mr Masashi Murata, vice-president at Brown Brothers Harriman & Co. "How much damage the UK economy will incur remains to be seen, but it is not positive for the pound. It has more downside."

The pound declined 1.3 per cent to US$1.2847 in early trading yesterday, after reaching a 31-year low of US$1.2798.

Asian markets also tumbled, led by a sharp fall in Japan's Topix index, which dropped 3 per cent.

There are "fears the global economy will worsen due to Europe", said Mr Mitsuo Shimizu, deputy general manager with Japan Asia Securities Group. "The UK's economic outlook is blurred with uncertainty and the pound's recent weakness is likely to encourage speculative buying in the yen."

Safe haven assets such as gold also rose. Gold climbed as much as 1.1 per cent to $1,371.39 an ounce, the highest level since March 2014, and silver advanced 1.8 per cent.

Japanese Prime Minister Shinzo Abe said that the government will carefully watch currency movements, and that he has asked Bank of Japan governor Haruhiko Kuroda to cooperate with Group of Seven nations to secure market liquidity.

Mr Toshiya Yamauchi at Ueda Harlow, a margin-trading services provider, said: "The yen strengthened in anticipation of further declines in Japanese stocks. Risks to further upside... are growing and it may test the 100 level to see how the authorities respond."

BLOOMBERG, REUTERS

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A version of this article appeared in the print edition of The Straits Times on July 07, 2016, with the headline 'Pound at 31-year low as investors seek safe assets'. Print Edition | Subscribe