The United Kingdom foiled market expectations today by voting to leave the European Union by a wide four point margin. Its decision drove the pound to a level against the dollar that it has never seen in 31-years. GBP/USD (GBPUSD) plunged to 1.3792, down by 7.28%.
Pound jolted by Brexit decision
Brexit also had implications on bonds with yields falling across the board as traders desperately seek safety from volatility. Bankers are experiencing currency market volatility that hasn’t been encountered in decades. Nick Parsons, co-head of global currency at NAB, said that the UK’s decision has sent markets back to the era of 1985 with more crises coming in the wake of the Brexit decision. EUR/USD (EURUSD) also fell 2.17% to 1.1135 on concerns that Europe will not recover easily following Brexit.
At the same time, traders are all but certain that the European crisis will frustrate the Federal Reserve’s rate hike plans if any, which forced the U.S. Dollar (CURRENCY:USD) down against the Japanese yen. USD/JPY (USDJPY) dipped 3.03% to 102.94.
Markets in free fall but off lows
As expected, Asian markets were deep in the red today with Nikkei 225 (INDEXNIKKEI:NI225) taking its worst hit in five years. The index plummeted by nearly 8% to 14,952.02 as investors collectively pushed the sell button simultaneously, panicking from what unfolded in in the UK. HANG SENG (INDEXHANGSENG:HSI) erased 2.92% to 20,259.13 while Shanghai SE Composite Index finished 1.30% down at 2,854.29.
European markets were in free fall but also off lows despite the Bank of England’s announcing £250 billion in funds to calm down market nervousness. FTSE 100 (INDEXFTSE:UKX) nosedived 5% to 6,0202.91 moments after opening while EURONEXT 100 (INDEXEURO:N100) tumbled 7.34% to 814.55.
Oil also failed to escape the markets’ wrath. Brent Crude hit $48.92 a barrel losing 3.91%, and West Texas Intermediate wiped off 3.93% to trade near $48.14 a barrel. Analysts hold the view that today’s sell-off is only short-term, and prices will soon return to align with core oil fundamentals.
