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Investors turn wary as Brexit, Trump uncertainty grows
[LONDON] Investors sold sterling and stocks on Monday, seeking shelter in gold and the Japanese yen as uncertainty over Britain's departure from the European Union and the policies of US President-elect Donald Trump curbed appetite for risky assets.
US markets were closed for the Martin Luther King Day holiday, crimping market activity and potentially exacerbating price moves.
The dollar rose, except against the yen, rebounding after suffering its worst week since November last week, when it was hit by a lack of clarity over what Mr Trump, whose inauguration is on Friday, will do once he assumes office.
The price of gold, a frequently sought haven for investors in uncertain times, hit its highest level since November. "The market is taking a reality check from Trump euphoria, equity markets are moving sideways, the dollar has steadied and bond yields are down, allowing gold to recover," Julius Baer commodities analyst Carsten Menke said.
Yields on low-risk German government bonds fell, but those on Italian equivalents edged up after rating agency DBRS cut Italy's credit rating late on Friday, a move that could raise borrowing costs for the country's banks.
But the eye-catching mover was Britain's pound, a day before a speech by British Prime Minister Theresa May. Media reported that she would lay out an exit from the EU that would see Britain lose access to the bloc's single market.
The pound fell as low as US$1.1983 in thin early Asian trade, which, barring a sudden "flash crash" in October, was its weakest against the dollar in 32 years.
Investors will scrutinise May's speech for clues to whether she plans to prioritise immigration controls in a "hard Brexit"that some analysts say could hurt the economy.
The fall in sterling, which makes UK exports cheaper, has contributed to an unprecedented 14-day rally in the blue-chip FTSE 100 stock index.
The index fell 0.2 per cent on Monday but still outperformed continental European markets. The main STOXX 600 index fell 0.8 per cent, as declines in autos and banks offset a rally in eyewear makers Luxottica and Essilor, who agreed a 46 billion-euro merger(S$69.6 billion).
German carmakers BMW, Daimler and VW fell between 1.6 and 1.8 per cent after Trump warned he would impose a 35 per cent border tax on vehicles imported to the US market.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.6 per cent, Japan's Nikkei lost 1 per cent as the strong yen hit exporters.