markets on July 5, as investors worried about the economic and financial
fallout of Britain’s vote to leave the European Union.
The
pound, the asset that has borne the brunt of market concerns about the
economic impact of the vote, slid 1.3 percent on July 5 to hit $1.3112,
its lowest since September 1985. That left it around 12 percent below
its pre-referendum levels.
Against the Bank of England’s trade-weighted basket of currencies, sterling fell to its weakest in more than three years.
Standard
Life Investments said late on July 4 that it had suspended all trading
in its UK real estate fund, one of Britain’s largest property funds, in
one of the first signs of major financial stress since the vote.
The
investment house, part of the insurer Standard Life, said the decision
had been taken after an increase in redemption requests due to
uncertainty following the ballot. It had said last week that it had
reduced the value of the fund, which invests in UK commercial real
estate assets, by 5 percent.
“Sterling hasn’t yet reached a
post-referendum equilibrium – the risks are still very much skewed
towards it trading lower from here,” said RBC Capital Markets currency
strategist Adam Cole. “It will take several more weeks at least for the
markets to take on board the news we’ve had.”
A survey of
Britain’s services sector showed that uncertainty in the run-up to the
referendum had slowed growth last month to a three-year low, and sent
business expectations to their weakest since 2012. But Cole said the
survey had had virtually no impact on the currency, and that investors
would only be able to see the real effect on business confidence in
July.
Risk sentiment soursStandard Life’s
announcement came after the end of trading in London on Monday and, with
trade thinned by the closure of U.S. markets for the Independence Day
holiday, Tuesday was traders’ first proper chance to react to the news.
“Risk
does seem to be under some pressure today – the news that Standard Life
is suspending trading in its commercial property fund is having some
impact for sure, and that’s contributing to the generally weaker tone in
risk sentiment,” said Societe Generale currency strategist Alvin Tan.
In
another sign that risk sentiment had soured, the U.S. 10-year Treasury
yield, a benchmark for borrowing costs across the globe, fell to a
record low as investors sought safe-haven assets.
Against the euro, the pound also skidded by 1 percent to 84.90 pence, its weakest since October 2013.
Because
the euro zone is also seen suffering economically from Britain’s vote
for Brexit, sterling has fallen less against the euro than against the
dollar, although the drop since the referendum is now approaching 10
percent.