The Pound to Euro exchange rate is now 11 cents weaker than it was on Thursday evening when the ballots closed following the EU referendum vote.
Pound Rallies Coming Into Referendum
Sterling climbed from 1.29 to 1.30 at the start of last week’s session as ‘Brexit’ sentiment dampened following a three-day break from campaigning after the tragic murder of Labour MP Jo Cox.
Polls and betting firms continued to predict a win for the ‘Remain’ camp through the week, allowing GBP/EUR to maintain three-week highs north of 1.30.
On the day of the vote, betting agencies gave an implied 76% probability that Britons would vote to remain and the cost to insure against Sterling volatility was down 10% on the previous week.
After the voting deadline YouGov released a poll suggesting that ‘Remain’ would win 52%-48% and this drove Sterling to a monthly high of 1.31.
Sterling Collapses Following ‘Brexit’
However, when the actual referendum results started to come in there were notable victories of the ‘Leave’ camp and this pushed the Pound lower. Broadcasters announced just before 5am that a ‘Brexit’ was inevitable and GBP/EUR plunged to a two-year low of 1.20, marking an extraordinary 10-cent daily fluctuation.
After the final votes were counted at 7am Prime Minister David Cameron announced plans to resign by October. Shortly afterwards Bank of England Governor Mark Carney attempted to calm markets with a promise of an additional £250 billion of liquidity in the banking sector.
GBP/EUR rose towards 1.23 on profit-taking by the end of Friday’s session but the Pound to Euro exchange rate resumed its slump at the start of this week’s session and is now trading near the 1.20 mark.
What Next For The Pound?
After the unprecedented vote to leave the EU, markets are struggling to value Sterling and subsequently the exchange rate is liable to fluctuate strongly over the coming days and weeks. Investors don’t know when the ‘Brexit’ process will start and they don’t know who will lead the government through the negotiations. In light of a spate of Labour shadow cabinet resignations, traders are also uncertain who will lead the opposition through these turbulent times.
The supreme uncertainty caused by the referendum result means that traders will likely be reluctant to send the Pound higher anytime soon. So although GBP/EUR is currently at a two-year low, it could well weaken further during this week’s session.