Sterling skids to new 31-year low on Brexit fallout worries

Sterling hit a fresh 31-year low against the dollar in risk-averse markets on Tuesday, 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% on Tuesday to hit $1.3112, its lowest since September 1985. That left it around 12% 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 Monday 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%.

"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 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 sours

Standard 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% 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%.

The Bank of England will publish its semi-annual Financial Stability Report later in the morning, which analysts said would be an opportunity for the bank to reiterate its ability to manage the financial system in the aftermath of the Brexit vote, but should not affect the pound much.

British finance minister George Osborne will also meet heads of major banks on Tuesday to discuss how the country should respond to the decision to leave the European Union.