Markets decline due to concerns about a potential recession as the pound reaches a new low

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Last Updated on September 26, 2022 by Bitfinsider

On Monday (Sep 26), the pound hit a record low against the dollar, sparking talk of an emergency intervention from the Bank of England as confidence in Britain’s strategy to borrow its way out of difficulty declined.

Concerns that high interest rates could harm growth also sent Asian shares to a two-year low, hard-hit stocks included Australia’s miners and Japan and Korea’s automakers. The devastation was not limited to currencies.

At one time, the pound fell by almost 5% to US$1.0327, breaking through the lows set in 1985.

Thinner liquidity in the Asia session made moves more difficult, but even after sliding back to US$1.05, the currency is still down roughly 7% in just two sessions.

The pound decreased 2.7% in early trade to S$1.5111 as of 11.30am on Monday as compared to the Singapore dollar.

The collapse of the pound happened as recession concerns driven by a significant tightening of monetary policy by central banks battling decades-high inflation drove markets all over the world into a tailspin.

As traders resumed trading after a long weekend, Tokyo lost more than 2%, Seoul lost more than 3%, and prices fell in Sydney, Shanghai, Mumbai, Singapore, Taipei, and Jakarta.

Hong Kong gave up early gains after announcing that it would loosen rigorous hotel quarantine regulations for visitors.

Liz Truss appointed Kwasi Kwarteng as the new finance minister of Britain after she was elected prime minister earlier this month. Kwasi Kwarteng declared in a mini-budget on Friday that he intended to cut taxes to boost the British economy and provide money to shield families from skyrocketing energy costs.

Investors, however, were alarmed by the enormous amount of borrowing that would likely be required for the multibillion-pound package, which detractors claimed would benefit the wealthy significantly more than the poorest during a crisis in the cost of living.

Over the course of the next six months alone, the plans will necessitate an additional £72 billion in government borrowing.

Due to the soaring dollar, both oil and gold were under pressure, with gold falling to a 2.5-year bottom of US$1,626 and Brent crude futures falling by almost 1% to their lowest level since January at US$85.06 a barrel.

As investors switched their attention back to the contrast between a hawkish Federal Reserve and the Bank of Japan’s insistence on remaining with huge stimulus, the dollar strengthened its gains against the yen following the shock of last week’s currency intervention by Japanese authorities.

Sterling, the euro, and the yen are all included in the dollar index’s currency basket, which reached 114.58 for the highest time since May 2002 before retreating to 113.73, which is 0.52 percent higher than it was at the conclusion of the previous week.

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