Yen sinks to new low as British pound briefly surges after Truss exit

NEW YORK, United States — The yen sank to a new 32-year low Thursday against the dollar, while the pound briefly rallied after British Prime Minister Liz Truss announced her resignation following a brief crisis-filled tenure.

Around 1900 GMT the dollar traded at 150.17 against the Japanese currency, which fell to levels last seen in August 1990 in a retreat that reflects the Bank of Japan's accommodative monetary policy next to the aggressive interest rate hikes adopted by the Federal Reserve.

Analysts say the yen will continue to slide as long as the two policies differ, with more dramatic Fed interest-rate hikes likely to address grinding inflation.

Markets were also fixated on Britain where Truss announced her resignation just 44 days after taking office, as the ruling Conservatives planned a rapid contest to replace the shortest-lived premier in UK history.

The British pound briefly surged more than one percent against the dollar to $1.1336, but later retreated somewhat.

"The political tumult in the UK is not going away anytime soon until we have a clear understanding on who will lead and what will be their agenda," said Oanda's Edward Moya.

The FTSE 100 index closed up 0.3 percent while Britain's borrowing costs eased on the news, as the yield on 30-year government bonds, known as gilts, fell to 3.90 percent.

"Sterling and gilts rallied as the sorry reign of Liz Truss came to an end," said Markets.com analyst Neil Wilson.

"After a flurry of activity we are seeing retracement of these initial moves as markets realize that there's still huge uncertainty about whether the Tory party can survive in power."

Strong dollar, China fears

Elsewhere, Wall Street stocks finished lower again, retreating after an early advance following the latest rise in US Treasury yield as weak housing data pointed to the drag from higher lending rates.

The yield on the 10-year US Treasury note climbed further above four percent, reflecting the market's expectation for more aggressive Fed interest rate hikes.

Data showed existing home sales in the United States fell for an eighth straight month in September, as surging mortgage rates following earlier Fed rate hikes weigh on demand.

Worries about higher interest rates offset a largely positive set of earnings from IBM, A&T and others.

Earlier, Asian markets finished the day in the red, with selling also fuelled by concerns about the Chinese economy as Covid cases spike in the country and leaders stick to lockdown strategies.