Sterling crashed to a record low early on Monday as traders rushed for the exits on mounting concern that the new government’s economic plan will stretch Britain’s finances to the limit.

The British pound’s searing drop helped lift the safe-haven US dollar to a new two-decade peak against a basket of major currencies, while the euro hit a fresh two-decade low against the greenback. In Japan, authorities reiterated that they stood ready to respond to speculative currency moves, after they intervened last week to bolster the yen for the first time since 1998.

But it was sterling’s slide that rippled across markets, down as much as 4.9 per cent to an all-time low of $1.0327.

The pound recovered ground during the London session but was still down 1.5 per cent at $1.0689, while British gilt prices collapsed on speculation that the Bank of England might need to take emergency action to stem the fall in sterling.

The pound had already fallen 3.6 per cent on Friday, when new finance minister Kwasi Kwarteng unveiled historic tax cuts funded by the biggest increase in borrowing since 1972. Kwarteng on Sunday dismissed the currency’s freefall, saying his strategy was to focus more on longer-term growth. Sterling was also down 1 per cent against the euro, having hit its lowest since September 2020 at 92.60 pence.

Kit Juckes, head of currency strategy Societe Generale in London, said markets had a tendency to overshoot but made two points about sterling’s slide.

“One is the loss of confidence in UK fiscal policy and that won’t help sterling,” he said. “The second is that the mini budget has allowed sterling to be the short of choice against the dollar.”

The euro also touched a fresh 20-year trough at $0.9528 and was last down 0.5 per cent. As the pound’s slide rippled across markets, Sunday’s election in Italy, in which a rightist bloc looked set for a solid majority, appeared to have little immediate impact.