Sterling
After months of divisive campaigning, the people of Britain voted 51.89%-48.11% in favour of leaving the European Union yesterday.
The result shocked traders, who had for the most part expected a ‘Remain’ win, and sent the Pound into freefall. Sterling’s steep losses were the largest on record for a single day.
The Pound racked up considerable gains across the board yesterday evening as markets reacted unduly positively to a YouGov poll released after the voting deadline suggesting a 52%-48% victory for the ‘Remain’ camp. UKIP leader and outspoken ‘Brexiteer’ Nigel Farage even went as far as suggesting defeat at this stage.
However, Sterling plummeted when the results for Sunderland came in, showing that ‘Leave’ won a stronger-than-anticipated majority of 61%-39%. The results shocked traders back to reality and the Pound slid as markets re-priced the risk of a ‘Brexit’ back into the exchange rate. The UK currency continued to devalue through the night as results came in and ‘Brexit’ became inevitable.
Euro
The Pound to Euro exchange rate weakened by around six cents to a two-year low earlier this morning in reaction to the unexpected referendum results.
Prime Minister David Cameron announced that he would be stepping down by the autumn in reaction to the nation’s decision to leave the EU. Now that we know the outcome of the vote the next issue is who will lead the UK through the two-year ‘Brexit’ period. Analysts suggest that Sterling could suffer further losses if the Conservative Party internal recruitment process unleashes another round of political uncertainty.
To almost zero consequence to the value of the single currency, Markit Economics announced yesterday morning that private sector output slumped to a 17-month low of 52.8 in June, down from 53.1 previously. The downbeat result was seen to reflect concerns from business owners that economic output was waning due to uncertainty surrounding the UK’s EU referendum. These concerns will likely intensify in future months as Europe adjusts to the idea of life without it’s second biggest economy.
US Dollar
‘Cable’ depreciated 15 cents to a 31-year low earlier this morning as investors eschewed the Pound in favour of the safe haven ‘Greenback’.
The extraordinary 10% decline was the largest intraday swing that Sterling has ever suffered against the US Dollar.
In a tumultuous two hours for GBP/USD, the Pound rallied to a 2016 high in reaction to a new YouGov poll at 10pm and then plunged seven cents lower when polling results gave ‘Leave’ a larger-than-expected margin of victory in Sunderland at midnight. The Sterling selling continued through the night and leaves GBP/USD at levels not seen since 1985.
In a separate and much less impactful data release, Markit Economics announced that US manufacturing activity rose faster-than-anticipated in June, printing at 51.4 compared to forecasts of 50.9.
Canadian Dollar
The Pound to Canadian Dollar exchange rate plummeted 13 cents to a two-and-a-half-year low this morning on news of Britain’s EU referendum results.
The commodity-sensitive ‘Loonie’ drew support versus some of the majors yesterday in response to oil, its largest export, rising to a two-week high. Among the reasons for the rally in crude were: comments from Saudi oil minister Khalid Al-Falih suggesting the two-year supply glut was over and predictions that Venezuelan output could drop by half a million barrels a day in 2016 due to electricity blackouts, financial distress and lack of maintenance.
Australian Dollar
Sterling ceded 11 cents to the Australian Dollar earlier this morning as global markets reacted negatively to Britons’ decision to leave the European Union.
GBP/AUD had actually devalued by 16 cents before the final votes were counted but traders bought back into the currency and drove Sterling higher from these levels.
New Zealand Dollar
Sterling struck a 16-month low against the New Zealand Dollar earlier this morning when polling data from Sunderland gave the ‘Leave’ campaign a surprisingly large lead. And GBP/NZD continued to depreciate through the morning, eventually settling 12 cents lower at a two-and-a-half-year low.
Data Released
13:30 USD Durable Goods Orders (MAY P) High -0.5%
15:00 USD U. of Michigan Confidence (JUN F) Medium 94.1