Brexit fallout continues as pound hit new lows
British pound has lost almost 20 cents US since voters chose to leave EU last week
The British pound hit fresh new lows on Monday as investors who drove the currency to its lowest level since 1985 last week found new reasons to worry about the prospect of Brexit.
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Sterling dropped 4.22 cents US to reach 132.13 cents. That's lower than the 31-year low of 132.40 cents that sterling hit on Friday, when the result of Britain's Brexit vote showed a majority Britons want to leave the European Union.
At one point before the vote, the British pound was trading at $1.50.
"Sterling is vulnerable to further near-term selling pressure," said Athanasios Vamvakidis, FX strategist at Bank of America Merril Lynch. "A push below $1.30 cannot be ruled out," he added.
The TSX lost ground again, falling 202.09 to close at 13,689.79. Metals, energy and bank stocks led the way down.
Monday's march lower comes on the heels of a 239-point drop on Friday.
Bank stocks again came under pressure on Monday.
"A lot of the expectations about what these financial stocks would be worth have changed," said JJ Kinahan, chief strategist at TD Ameritrade.
The Royal Bank of Scotland and Barclays both had their shares halted after declining by as much as 15 per cent.
Oil was also punished, losing $1.31 to settle at $46.33 a barrel. The loonie followed suit and moved lower by 0.44 of a cent to close at 76.49 cents.
The Dow Jones Industrial Average fell 260.51 points to 17,140.24, while the Standard & Poor's 500 index lost 36.87 points to 2,000.54.
Rating cut
Standard & Poor's said Monday it has stripped the U.K. of its top credit grade in the wake of the vote to leave the E.U. The rating agency downgraded the country's sovereign rating by two notches, from AAA to AA, saying the vote is a "seminal event" that "will lead to a less predictable, stable and effective policy framework in the U.K."
It is also keeping a negative outlook on the rating, which means it could downgrade the country further.
It added in a report that the outlook reflects the risk to the economy and public finances, as well as the pound's role as an international reserve currency.
Fitch also cut its credit rating on the U.K., dropping it one notch to AA from AA+.
Trying to calm investors
George Osborne, chancellor of the exchequer — Britain's equivalent of the finance minister — worked to assuage investors that the ruling Convervatives have a plan to deal with Brexit's financial impact.
"It will not be plain sailing in the days ahead," Osborne said. "But let me be clear. You should not underestimate our resolve. We were prepared for the unexpected."
His words alone were not enough, however, as the pound lost another three per cent on Monday.
"Markets will be nervous given that the EU and U.K. have some mismatch in terms of timing of exit procedures and negotiations," Mizuho Bank analysts said in a report.
Osborne pledged not to impose a new austerity budget, even though he said during the campaign that one would be necessary if voters chose to leave the EU.
He also said the job of formally declaring Article 50 — the EU rule that must be invoked for any member nation to leave the bloc — would fall to whoever replaces Prime Minister David Cameron, who said Friday he would be stepping down.
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With files from The Associated Press