Frenzied investors pushed markets lower on Wednesday amid continued fallout from the U.K.’s recent vote to leave the European Union.
The British pound dropped to its lowest level in decades, hitting $1.28. The Japanese yen strengthened by as much as 1%.
Asian stocks also had a rough start, led by a 3% decline in Japan’s Nikkei. Markets in Hong Kong and Korea fell about 2%.
Investors are still trying to sort through the aftermath of Britain’s vote to leave the EU in a referendum on June 23. There are major questions over the country’s economic and political future as it heads towards “Brexit” and becomes the first country to drop out of the 28-nation bloc.
Several EU leaders have called on the U.K. to start the withdrawal process as soon as possible, to limit uncertainty. But the U.K. is likely to wait before triggering the process. Prime Minister David Cameron has resigned, saying it would be up to the new leader to negotiate with the EU.
But it will take time for the Conservative Party to elect a new leader. Meanwhile, the main opposition Labour Party has also fallen into chaos following the vote.
One of the biggest unknowns is whether the U.K.’s vote to leave the union will trigger demands to leave from other countries, setting off a wave of turmoil across Europe.
Another concern is whether London will be able to maintain its status as an international financial center. Bank stocks and other financial service firms have taken a beating.
Investors are also pulling money out of commercial property, and shares in housebuilding companies are falling fast. Already this week, three big asset management firms have halted trading in real estate investment funds.
One bright spot is that a weaker pound might help boost U.K. exports — Goldman recently upgraded shares of U.K. consumer and export giants Diageo — the maker of Johnnie Walker Scotch whisky and Guinness beer — as well as cigarette giant British American Tobacco — the owner of Lucky Strike, Dunhill and Pall Mall cigarettes.
But a waning pound can also cause prices to rise and make the U.K. less attractive for investors. If they start pulling money out, the U.K. could have trouble funding its large current account deficit.