- Pound US Dollar Exchange Rate Plummets Following Brexit Result – ‘Leave’ camp victory has already seen Sterling drop 10%.
- FTSE 100 Stock Index Rebounds to Pre-Referendum Levels – Influential stock index jumps back up to pre-vote levels but remains marred by uncertainty
- Safe-Haven Demand Continues to Thrive – Post-vote increases in market doubts see investors flock to stable currencies
- Forecast: Eyes on head Policymakers to Shape Future Sentiment
Following last week’s revelation that the UK voted to renounce the European Union, the Pound US Dollar exchange rate saw its biggest single-day slide ever, hitting levels not seen since 1985.
Britain’s monumental decision to exit the European Union at the end of last week has sent shockwaves through markets the world over. Following the vote, over $2 trillion was struck off from global stock markets and the Pound immediately devalued by 10%.
Briefly reaching a height of 1.50 as polls first suggested a Remain victory on Thursday night, the pairing then fell as low as 1.34 immediately following the announced results.
Coming out of the weekend the Pound US Dollar exchange rate has shed the marginal gains made on Friday evening and currently sits at 1.33 Dollars to the Pound.
Pound (GBP) Continuing to Feel Pressure from Post-Referendum Uncertainty
Naturally, last week’s Leave victory resulted in the Pound seeing an unprecedented period of instant devaluation.
Dropping 10% across the board, it was the biggest single-day slide the currency has ever experienced. Sterling marginally recovered before the close of trading on Friday as the initial fervour subsided but has remained woefully weak on the world stage.
The FTSE 100 has rebounded following a 300 point plunge immediately after the results were announced on Friday. Further volatility seems likely however as the uncertainty caused by this referendum is far from over.
Both political parties are in turmoil as an apparent interregnum takes place. David Cameron has announced his resignation following the ‘Leave’ victory, leading the media to announce Boris Johnson as the favourite for his replacement, much to the chagrin of many Tory MPs and the country as a whole.
Opposition leader Jeremy Corbyn has struggled with a cabinet coup as a cadre of his top ministers resigned amidst a vote of no confidence in the Labour leader. Appointing new loyal MPs to the recently vacant positions, Corbyn may soon run out of support within the party as more than a third of his cabinet consists of the original Corbynite MPs.
US Dollar to Pound Exchange Rate Rallies on Safe-Haven Demand
On the back of the UK’s decision to leave the European Union, safe-haven demand has seen investors flock towards the stable ‘Buck’ as the market settles into a decidedly risk-averse attitude.
The news that the UK would be leaving the EU sent a tidal wave of renewed uncertainty crashing into markets and saw traders run into the safe-haven arms of the US Dollar and Japanese Yen.
This increase in safe-haven demand saw the US Dollar appreciate across the board but has reinforced fears of a postponed US Federal reserve rate hike to the point that some analysts are counting on the Fed actually cutting rates in the near future. Chief economist at Warburg Asset Management, Carsten Klude, mentioned in a note to his clients today that if future uncertainty persists in the coming months, the Fed may be pushed to loosen monetary policy.
Future in Policymaker’s Hands as Forecasts await Fiscal Measures Announcements
Already today we are seeing the Pound begin another slide just as Chancellor of the Exchequer George Osborne took to the stage in an attempt to quell investor’s burgeoning uncertainty.
It is hard to discern any future market movements as policymakers have yet to announce how they are going to tackle the emerging post-referendum economic landscape. IMF head Christine Lagarde mirrors this sentiment stating:
‘At this point in time, policymakers, both in the UK and in Europe, are holding that level of uncertainty in their hands… How they come out in the next few days is going to really drive the direction in which risk will go’
The US Dollar appears to have a good week ahead in regards to effectual ecostats but future Pound US Dollar exchange rate movement could be tumultuous until policymakers announce a plan for moving ahead. US GDP figures, consumer confidence surveys and PMI releases are just a few of the potentially impactful releases set for the week.
The true fallout of the ‘Leave’ victory will stay obscured until the lengthy Brexit negotiations begin and we see what effect this result is going to have on business within the UK. For now all there is to say is that the markets continue in a heavily risk-averse direction, uncertainty remains sky-high and will do until someone comes forth with a plan.
As safe-haven demand remains and Sterling continues its downward slide, the Pound US Dollar exchange rate appears to be in for future depreciation.
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