The global financial market is teetering as the “pound shock,” in which the value of the British pound fell to an all-time low, hit the Asian and European stock markets, followed by the New York Stock Exchange in the U.S. The decline in the value of the British pound will cause a setback in debt repayment and even warns that a “financial crisis originating in the U.K.” may occur. This refers to the “king dollar” phenomenon, which means the superstrength of the dollar could shrink world trade as the currencies of other countries fall one after another. This coincided with concerns about an economic slowdown in the U.S. central bank, the Federal Reserve.
The exchange rate of the British pound against the U.S. dollar declined by about 5 percent on Tuesday (local time), falling to an all-time low of 1.03 U.S. dollars, and then opened the market with an upward trend Tuesday. The previous low was 1.05 dollars on February 26, 1985. The pound's exchange rate rose to 1.09 dollars during the day. Still, contrary to market expectations, when the Bank of England (BOE) did not implement an emergency rate hike, it plunged close to the 1.06-dollar range, displaying market fluctuations. As anxiety spread over the sharp plunge in the pound, the five-year U.K. government bond yield rose to 4.603 percent on the same day, the highest since September 2008, during the global financial crisis.
The three major U.S. stock indexes also fell all at once due to the pound shock. Standard & Poor's (S&P) 500 fell 1.03 percent on Tuesday from the previous day, hitting a new low for the year. The Dow fell more than 20 percent from its previous high and entered a bear market. S&P 500 fell 1.03 percent to a new low for the year.
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