CURRENCIES: Pound Slides To 31-year Low As Political Vacuum Roils U.K.

By Joseph Adinolfi and Sara Sjolin, MarketWatch

China's yuan fixing sees biggest one-day drop since a devaluation in August

The British pound fell to its weakest level since the mid-1980s on Monday as political turmoil heightened anxieties about the U.K.'s historic vote to leave the European Union, weighing on European currencies and stocks.

Sterling slumped to $1.3197 late Monday in New York, its weakest level since 1985, compared with $1.3684 late Friday in New York. The FTSE 100 fell 2.6% to 5,982.20.

The U.K. is facing a leadership vacuum, with the ruling Conservative Party debating who will succeed David Cameron as prime minister following his resignation Friday.

The opposition Labour Party faced its own leadership challenge after 12 members of leader Jeremy Corbyn's shadow cabinet resigned.

"Sterling's vulnerability to political uncertainty is enhanced by the UK's sizable 5.2% of GDP current account deficit. Typically the UK's success in winning inward investment offers the pound solid support despite the gaping current account imbalance," Jane Foley, senior currency strategist at Rabobank. "However, one of the many unknowns currently is how these flows will be impacted going forward."

Meanwhile, the euro and a host of other European currencies--including the Norwegian krone, Swedish krona, Hungarian forint and Polish zloty--all recorded sharp declines for a second straight day as investors worried about possible economic contagion spreading through Europe.

"The weakest currencies are a bunch of European currencies," said Kit Juckes, chief currency strategist at Société Générale. "The strong places are the places that have very little to do with this."

Developing-market currencies in Europe were hit particularly hard, with the dollar gaining 1% to buy 4.05 Polish zloty late Monday, compared with 4.00 late Friday. The dollar rose 1.2% against the Hungarian forint , buying 289 forint late Monday, compared with 286 forint late Friday.

Read: British pound could hit history-making dollar parity by end of 2016 (http://www.marketwatch.com/story/british-pound-could-hit-history-making-dollar-parity-by-end-of-2016-2016-06-27)

The shared currency traded at $1.1015 late Monday, compared with $1.1118 late Friday.

British Chancellor of the Exchequer George Osborne issued a statement (http://www.marketwatch.com/story/osborne-says-uk-in-position-of-strength-as-he-tries-to-reassure-markets-2016-06-27) meant to reassure financial markets an hour before the British markets opened.

"The Treasury, the Bank of England, and the Financial Conduct Authority have spent the last few months putting in place robust contingency plans for the immediate financial aftermath in the event of this result," said Osborne.

The comments briefly helped support the pound, with the U.K. currency rising to a session high of $1.3450, but it quickly moved lower.

Yuan falls, yen gains

The dollar rose to its highest level against the Chinese yuan in more than five years, buying 6.6511 yuan in recent trade, compared with 6.62 yuan late Friday, after the biggest one-day depreciation of the currency's daily fixing (http://www.marketwatch.com/story/china-eyes-yuan-stability-as-brexit-shakes-up-plan-2016-06-27) since last year's shock devaluation in August.

The currencies of other developing-market currencies in Asia followed the yuan lower. The dollar rose to to 1,180 Korean won, its strongest level since early June, compared with 1,171.95 Friday.

As the global flight to safety that began late Thursday continued, the Japanese yen, a popular haven during periods of market turmoil, rose to Yen101.96 against the dollar late Monday, after touching it's strongest level since late 2013 earlier in the session. By comparison, one dollar bought Yen102.19 late Friday.

Read: Japan emerges as key victim in fallout from Brexit (http://www.marketwatch.com/story/japan-emerges-as-key-victim-in-fallout-from-brexit-2016-06-27)

(END) Dow Jones Newswires

June 27, 2016 15:16 ET (19:16 GMT)

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