Sterling slumped to a record low on Monday before recovering as traders waited to see whether the Bank of England would intervene to ease concerns that the new government’s economic plan would push British finances over the edge.
The fall in sterling helped the dollar, which often functions as a safe-haven asset, hit a two-decade high against a basket of major currencies, while the euro hit a two-decade low against the greenback.
In Japan, authorities have reiterated that they are prepared to respond to speculative moves in the currency, after intervening last week to prop up the yen for the first time since 1998.
The fall in the pound, which had already plunged 3.6% on Friday after the presentation of the historic tax cuts of the new finance minister, Kwasi Kwarteng, financed by the largest increase in debt since 1972, reverberated in the markets, reaching to fall 4.9% to a record low of $1.0327.
On Sunday, the official dismissed the currency’s free fall, stating that his strategy was to focus more on long-term growth.
The currency recovered ground during the London session, falling 0.29% to $1.0822, as British gold prices collapsed on speculation that the Bank of England (BoE) may need to take emergency action to stem the slide in gold. the pound sterling.
The euro also hit a 20-year low against the dollar, trading at $0.9528 and then down 0.31%.
The dollar index, which measures the greenback against a basket of major currencies, rose 0.239% to 113.41 units, after hitting 114.58 units for the first time since May 2002.
“The focus is on the British pound, but the dollar story is much bigger and that’s the part that isn’t helping,” said Seema Shah, chief strategist at Principal Global Investors.
The dollar was up 0.6% at 144.23 yen, getting closer to Thursday’s 24-year high of 145.90. That same day it sank to 140.31 after Japan intervened in yen buying for the first time in more than 20 years.