Investors sold sterling and stocks in Europe and Asia on Monday, seeking shelter in gold and the Japanese yen as uncertainty over Britain's departure from the European Union and the policies of U.S. President-elect Donald Trump curbed appetite for risk.
The dollar rose, except against the yen, rebounding after suffering its worst week since November, when it was hit by a lack of clarity over what Trump, whose inauguration is on Friday, will do once he assumes office.
U.S. markets were closed for a holiday, potentially exacerbating price moves in thinner than normal trade.
The price of gold, a frequently sought haven in uncertain times, hit its highest level since November.
"(The movement) shows that people are looking ahead this week with Trump's inauguration and discussions on Brexit. There is a lot of uncertainty moving forward," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central
Yields on low-risk German government bonds fell, but those on Italian equivalents rose after rating agency DBRS cut Italy's credit rating after markets closed on Friday, a move that could raise borrowing costs for the country's banks.
But the eye-catching mover was sterling, 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 $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 scrutinize May's speech for clues to whether she plans to prioritize 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 marginally on Monday but still outperformed continental European markets. The main STOXX 600 index fell 0.7 %, as declines in autos and banks offset a rally in eyewear makers Luxottica and Essilor, who agreed a 46 billion-euro merger.
German carmakers BMW, Daimler and VW fell 2 % after Trump warned he would impose a 35 % border tax on vehicles imported to the U.S. market.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.6 %, Japan's Nikkei lost 1 % as the strong yen hit exporters.
Sterling last traded at $1.2043, down 1.1 % on the day. The euro was up 0.6 % at 87.95 pence while the yen was up 0.8 % at 137.45 to the pound.
"Every time there’s hard Brexit headlines, that triggers a fresh bout of selling," MUFG currency analyst Lee Hardman said.
"The fact that the sell-offs usually happen during periods in which there's less liquidity increases the risk we could have a sharper sell-off (today), but as we saw in the flash crash that doesn't mean that's fundamentally justified," he added
The dollar index, which measures the U.S. currency against six of its peers, rose 0.4 %. The euro fell 0.5 % to $1.0592 while the yen, another perceived safe haven investment, rose 0.4 % to 114.07 per dollar.
U.S. markets are closed on Monday for a holiday.
German 10-year bond yields fell 1.9 basis points to 0.25 %. Italian 10-year yields, by contrast, rose 2.7 bps to 1.93 %.
Italy's downgrade will mean Italian banks will have to pay more to borrow money from the European Central Bank when they use the country's sovereign bonds as collateral. It may also make Italian debt less attractive for foreign buyers.
Oil held steady, though doubts that large oil producers will cut output, as agreed by the Organization of the Oil Producing Countries and others, put prices under pressure
Brent, the international benchmark, last traded at $55.29 a barrel, down 16 cents on the day.