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Pound nosedives to all-time low vs Singdollar

SINGAPORE — The pound plummeted to a new all-time low versus the Singapore dollar yesterday and a fresh 31-year low against the US dollar, extending Friday’s selloff following Britain’s decision to quit the European Union, while stock markets continued to flounder, although Asian bourses enjoyed a brief respite.

Reuters file photo

Reuters file photo

SINGAPORE — The pound plummeted to a new all-time low versus the Singapore dollar yesterday and a fresh 31-year low against the US dollar, extending Friday’s selloff following Britain’s decision to quit the European Union, while stock markets continued to flounder, although Asian bourses enjoyed a brief respite.

In London, the pound fell 3.3 per cent to S$1.7884, extending Friday’s 7.1 per cent plunge amid the political and economic fallout of Brexit, before recovering partially to S$1.7960 by mid-afternoon.

Against the US dollar, the pound fell past US$1.3200 to US$1.3165, its lowest since mid-1985, taking losses to nearly 12 per cent since the referendum. Investors and traders found little assurance in Finance Minister George Osborne’s remarks that the UK economy is in good shape and that the government and Bank of England have further actions available to them.

“Uncertainty equals currency weakness, we know this, and there is no sense that sterling is a value trade right now and that you have to get back in. It is too early for anyone to start calling a bottom. The clear risk must be for further downside,” said Mr Neil Mellor, a currency strategist at Bank of New York Mellon in London.

The pound saw its worst day in history on Friday, as investors betting on Britain remaining in the EU cut or reversed their positions en masse. Meanwhile, Brexit had raised the likelihood of a further cut in UK interest rates, with investors pricing in a 25 basis point cut by the end of the year. Yesterday, a 20 per cent slide in UK banking shares along with a lack of clarity on who runs the British government and a likely fresh move for Scottish secession combined to make matters worse for sterling.

The yen, often bought in times of market stress, was little changed at 102.20 per US dollar, after soaring on Friday to a near three-year high at 99.02. Gold, a safe haven like the yen, continued to climb. Bullion for immediate delivery rose 0.8 per cent to US$1,325.79 an ounce in London, after surging as much as 8.1 per cent on Friday to the highest in two years.

On the stock markets, Britain’s FTSE-100 Index fell 2 per cent while Germany’s DAX and France’s CAC indices were both down 2.1 per cent in mid-afternoon trade, as investors continued to dump equities after about US$2.5 trillion was wiped off global markets last Friday. Across the Atlantic, the Dow Jones Industrial Average was down 1 per cent five minutes after the opening bell in New York.

“Markets will be nervous given that the EU and the UK have some mismatch in terms of timing of exit procedures and negotiations. The EU’s legitimacy may be tested by separatist parties. Spanish elections more immediately and then French elections in 2017 add to the complexity of political dynamics involved in negotiations,” said Mizuho Bank analysts in a note to clients.

“Brewing uncertainty suggests that the stage is set for potentially stormy global markets,” it warned.

Still, a semblance of calm returned to Asia yesterday, led by gains in the region’s two largest economies – China and Japan, although it remains to be seen if these can be sustained in the days ahead. The Shanghai Composite Index rose 1.5 per cent yesterday, recovering from Friday’s 1.3 per cent loss while Japan’s Nikkei-225 Index gained 2.4 per cent, clawing back some of the 7.9 per cent yen-driven decline in the previous session. The Straits Times Index fell 0.2 per cent after Friday’s 2.1 per cent drop.

On trading floors in Singapore, traders resumed their normal working hours after Friday’s frenzy, when many turned up for work at 4am to prepare for the Brexit vote outcome. Ms Joanna Tan, a spokesperson for Phillip Futures, said: “Business is as usual, trading is active but definitely quieter than last Friday. The phones are still constantly ringing but we now have the usual work shift rather than the full strength on Friday.”

Traders told Today they are seeing a surge in interest from new clients as well as dormant ones, as the market selloff opens up investment opportunities for the brave. In response to this spike in interest, Phillip Futures said it will be sending out electronic mailers to clients on the impact of Brexit as well as holding an investment seminar next week on the topic.

“It (Brexit) is very much a European issue. For us in Asia, it’s an opportunity to look around for things you want to buy,” said Mr Joshua Crabb, Hong Kong-based head of Asian equities at a unit of Old Mutual.

From a longer-term perspective, the region has value on its side: The MSCI Asia Pacific Index is trading near the cheapest levels versus global peers in at least 15 years as concerns about China’s economic slowdown and the US interest rate outlook made the gauge a serial underperformer. The Asian measure fell 5.3 per cent in the five years through last Friday, compared with an advance of 22 per cent in Europe’s benchmark index and a rally of 61 per cent in the S&P 500 Index. – AGENCIES, WITH ADDITONAL REPORTING BY ANGELA TENG

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