• Sterling left reeling after ‘Brexit’ vote – Pound at multi-year lows.
• GBP/EUR hits 2-yr low – Tories and Labour in crisis.
• Pound to US Dollar rate his 31-yr low –USD gains safe haven demand.
• Antipodeans rise against Pound – Political uncertainty adds to ‘Brexit’ turbulence.

Sterling

Britain’s decision to vote to leave the European Union sent shockwaves through the global economy on Friday. The historic vote wiped around $2 trillion off global stock markets and caused the Pound to devalue 10% - its biggest ever one-day decline.

Having campaigned heavily to remain in the EU, Prime Minister David Cameron announced plans to step down swiftly after the results were confirmed. ‘Brexiteer’ Boris Johnson has emerged as the front-runner to replace Cameron but many Tory MPs have expressed a desire for ‘ABB: anyone but Boris’. The opposition Labour party is in a crisis of its own, with more than 10 of Jeremy Corbyn’s shadow cabinet members resigning and calling for his resignation over the weekend, citing a lack of leadership and a lacklustre pro-EU campaign.

With Britain’s two largest parties in crisis, Scotland calling for a second independence referendum and Irish politicians calling for reunification, the initial consequences of ‘Brexit’ have done little to assuage fears of further financial turbulence. As a result of this the Pound suffered further losses when markets reopened for the new week.

Euro

The Pound to Euro exchange rate struck a two-year low on Friday morning when broadcasters announced that Britain had voted to leave the EU.

GBP/EUR experienced extreme levels of volatility throughout the day, trading in a choppy four-cent range as markets struggled to accurately value the Pound following the momentous referendum. Sterling weakened by a further 150 pips when markets reopened for the week in Asia, suggesting that political uncertainty is exacerbating the already fraught situation.

The Bank of England pledged to provide British banks with £250 billion of extra liquidity on Friday and many analysts expect the central bank to roll out another round of stimulus in the coming weeks. Additional quantitative easing measures or negative interest rates would likely put further downward pressure on the Pound if announced.

US Dollar

Sterling’s unprecedented 10-cent decline versus the US Dollar took ‘Cable’ to a 31-year low on Friday. It was the worst day on record for GBP/USD, dwarfing the declines of the financial crisis of 2008 and Black Wednesday of 1992.

The Pound to US Dollar exchange rate opened for the week 250 pips lower than Friday’s close, in a sign that tumultuous uncertainty is likely to drive Sterling lower over the coming days and weeks. The ‘Greenback’, on the other hand, is benefitting from its status as the world’s premier reserve currency, absorbing defensive inflows from jittery traders all around the globe.

Canadian Dollar

Sterling’s double-digit declines versus the Canadian Dollar on Friday seeped through into the new week of trading, with GBP/CAD down three cents when Asian markets reopened last night.

The risk-sensitive ‘Loonie’ lost ground against the traditional safe havens of the Yen, the Swiss Franc and the US Dollar as ‘Brexit’ shockwaves pulled the plug on risk appetite, but the Canadian Dollar is now 16 cents stronger against the Pound than it was when the final referendum ballot papers were cast last Thursday evening.

Australian Dollar

The Pound to Australian Dollar exchange rate struck its lowest level since 2014 on Friday and is now 250 pips lower than it was when markets closed for the week on Friday evening. Although the high-beta currency has suffered sturdy losses versus some of the majors, on fears that ‘Brexit’ turmoil could linger for months as British officials seek to negotiate a new deal with Europe, the ‘Aussie’ has been able to appreciate 17 cents since the vote.

New Zealand Dollar

After plunging 17 cents during the early hours of Friday morning when it became clear that the ‘Brexit’ camp had won the UK’s EU referendum, the Pound to New Zealand Dollar exchange rate fluctuated in a shockingly wide eight-cent range during the day, before opening this week’s session at its lowest level since late 2013.

Data Released

14:45 USD Markit US Services PMI (JUN P) Medium 51.9

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Regards,
Natalie Collins

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