Brexit risk rout deepens as British pound slips anew in early Asian trading

A vendor holds British Pound banknotes at a money exchange shop.
A vendor holds British Pound banknotes at a money exchange shop.PHOTO: AFP

WELLINGTON (BLOOMBERG) - The bleeding in financial markets continued, with the pound extending its selloff near a 31-year low and equity index futures signaling more losses as the fallout from the UK's vote to exit the European Union stoked anxiety among investors around the world.

Sterling sank beyond US$1.35, extending losses near weakest level since 1985 as investors face months of uncertainty over Britain's future amid turmoil within the two major political parties and Scotland agitating anew for independence. The angst boosted gold amid demand for haven assets following the worst day for global stocks in almost five years.

The pound slipped another 1.6 per cent to US$1.3464 as of 7:58 am Tokyo time, extending Friday's record 8.1 per cent plunge. Against the Singapore dollar, the pound was down 2 per cent at 1.8199 from its close last week of 1.8567, but off it 30 year low of 1.8020 hit on Friday.

The British currency also lost 1.3 per cent against the euro, as the common currency retreated versus the dollar, weakening 0.4 per cent to US$1.1073.

The victory for Brexit tore through world markets on Friday, pummeling the pound and high-yielding assets as more than US$2.5 trillion was wiped from global equity values. Prime Minister David Cameron resigned without spelling out when the UK intends to leave the EU and eight members of Labour Party leader Jeremy Corbyn's team quit amid calls for his ouster. US Secretary of State John Kerry travels to Brussels and then London Monday as Nicola Sturgeon, the first minister of Scotland - whose people voted to stay in the EU - teases the possibility of a second referendum on independence from the U.K.

"Markets will likely be in a febrile state for weeks to come," said Ray Attrill, global co-head of foreign exchange strategy at National Australia Bank Ltd. in Sydney. "I'm not sure that changes even when the political leadership vacuum in the UK is filled."

The next days and weeks will likely be key for central banks as they seek to minimize the damage in trading from Asia to the US

As the vote tally came in on Friday - surprising many investors who had bought risk assets in the lead-up to the referendum amid optimism the "Remain" camp would prevail - Governor Mark Carney said the Bank of England could pump billions of pounds into the financial system. The European Central Bank said it will give lenders all the funding they require, while in the US, the Federal Reserve said it was "carefully monitoring" financial markets.

The vote for Brexit has spurred traders to price in a 10 per cent chance of the Fed changing tack and cutting interest rates next month, Fed funds futures show.

With protesters angry at the result taking to the streets at the weekend and circulating petitions calling for a fresh vote, the EU's founding members bolstered pressure on the UK to leave the group as soon as possible. Cameron has said he is in no hurry to make the move, indicating he will wait as long as three months before making way for a new leader who will be tasked with negotiating the exit.

"People are finding it difficult to comprehend what Brexit implies for the future - we don't know yet what the magnitude of the shock will be," said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group in London. "So far, in terms of sterling-dollar, we've seen half the decline we're likely to see this year."

Elsewhere in Europe, Spain's two main left-wing parties were on track for victory in that country's election, with the anti-establishment group Podemos likely winning a majority with the Socialists.

The Aussie weakened at least 0.3 per cent with its New Zealand counterpart Monday as the krone sank 2.1 per cent, bringing its two-day drop to more than 4.5 per cent.

Oil fell for a second day. West Texas Intermediate crude lost 0.6 per cent to US$47.34 a barrel after tumbling 4.9 per cent on Friday, the worst loss since its February rout.

The yen, which typically moves at odds with Japanese shares, was little changed at 102.22 per US dollar after earlier strengthening as much as 0.7 per cent. The currency jumped as much as 6.7 percent last session, reaching 99.02 for the first time since 2014.

Yen-denominated Nikkei 225 Stock Average futures slipped 0.1 per cent to 15,100 in Chicago, after sliding 8.3 per cent on Friday. Futures on the S&P 500 dropped 0.4 per cent to 2,010 after the U.S. benchmark ended Friday down 3.6 perc ent. That was the biggest retreat since last August, when China unexpectedly devalued the yuan.

New Zealand's S&P/NZX 50 Index, the first major stock gauge to start trading for the week, fell 1.2 per cent.