Currency News: Currencies React to Brexit, Markets and Politics Uncertainty
Currency News
Currencies React to Brexit, Markets and Politics Uncertainty
The Dollar rose against both the British Pound and the Euro after the decision came from the UK to the leave the EU.
News came out late Thursday evening that the UK, in a close vote of 51.9% to 48.1%, to head for a Brexit. Markets and Currencies didn’t react well to the news, as the Dow futures, before Friday’s trading, plummeted 700 points. The fear of a Brexit was seen diminished by many and came as a shock to many investors who went to higher risk investments.
Currencies and Markets were both hit hard on the news. The Pound plunged 9.7 percent to $1.3465, over the weekend, close to its lowest levels in 31 years. The Euro dropped 3 percent to. The Krone slipped downward as well.
According to the Wall Street Journal, Government bonds, and shares of weaker economies, like Italy and Spain, suffered big losses. The Euro Stoxx 50 index closed 8.6% lower on Friday. Germany’s Dax index fell as well 6.8%. But Spain’s Ibex and Italy’s FTSE MIB both suffered 12% losses, worst one-day loss in their histories.
After the news, investors flopped to safe havens such as gold and treasuries. Many are now looking to major banks reaction such as the Bank of England (BoE), European Central Bank (ECB), and the Federal Reserve (Fed). Central Bankers are currently in Portugal now, debating on what next steps to take. The Eurozone has been in the spotlight a lot this year for investors. According to Bank of America Merrill Lynch, investors already pulled out $45 Billion dollars this year, before the Brexit. With the Brexit, that number will probably increase.
The market is having a tough time trying to understand what this all means. Markets were volatile on Friday, and it’s heavily predicted that thus will continue into next week. “Markets will likely be in a febrile state for weeks to come,” said Ray Attrill, global co-head of foreign exchange strategy at National Australia Bank Ltd. in Sydney. “I’m not sure that changes even when the political leadership vacuum in the U.K. is filled.”
Looking at the political spectrum, after the vote was not in favor of PM David Cameron’s side, he immediately announced his resignation. Chancellor of the Exchequer George Osborne tries to sooth the UK and the world as he is the first person from the “stay campaign” to speak out about the future. The EU is kicking off talks on what next steps to take. Germany’s Chancellor, Angela Merkel, is holding these talks and trying to promote confidence to the bloc and world that things will work out. “At this point in time, policy makers, both in the U.K. and in Europe, are holding that level of uncertainty in their hands,” International Monetary Fund Managing Director Christine Lagarde said on Sunday. “How they come out in the next few days is going to really drive the direction in which risk will go.”
