The pound made history when it plummeted along with UK stocks after the nation voted for a Brexit.
Sterling sliding the most on record against the dollar, with it stopping at its weakest level since 1985. All of this the result of the UK that has been part of the European Union for over four decades voting to get out. This caused the UK stocks to tumble, with banking stocks losing up to 32%. Just after 7 am, the closing tally was announced. London time showed that 52% of voters had backed leaving while 48% voted to stay. PM David Cameron revealed he would step down.
By 5 pm, London time, the 8.4% plunge was its worst day ever on record, surpassing the 4.1% drop on 1992’s Black Wednesday, when the Europe’s exchange-rate mechanism forced the pound out — the previous biggest daily drop that has ever been recorded. Sterling slumped to its weakest it has been in two years versus the euro, and a measure of predictable swings vs. the dollar over the subsequent month flowed to a record.
Bank of Tokyo-Mitsubishi UFJ Ltd’s foreign-exchange strategist in London, Lee Hardman said, “It’s a huge shock which is having global ramifications across all asset classes. This is still the early stage and it could obviously continue to morph into something even more extreme. That will be the primary concern.”
The speculation that the Bank of England will uphold an easy monetary policy stance to keep the risk of recession at bay, resulted in the UK government bonds jumping up.
Earlier Sterling reached $1.3229, which is the lowest it has been since 1985. The UK currency weakened 6.2% to 81.27 pence per euro, resulting in the largest decline on record.
On Friday the pound swung in a wider range versus the dollar than it did entire last year.
Bloomberg’s British Pound Index tracks sterling against seven major peers, fell 8%, while the FTSE 100 Index of shares slumped 3.2%. Bank stocks slid across Europe, with Credit Suisse Group AG, Royal Bank of Scotland Group Plc, Barclays Plc, and Deutsche Bank AG finding themselves with some of the biggest losses.
HSBC Holdings Plc David Bloom, London-based head of global currency strategy, says. “There are certain days you never forget and this will be one of them. Everyone is all over the place, it’s been a roller coaster.”
Since the start of the campaign in February, the pound has robustly varied, acting as a barometer for sentiment and always reflective of the side of the debate that was leading. For the first time since December, the currency had climbed above $1.50 after a nationwide YouGov Plc survey was conducted on the day of the vote showed a 52% share for the status quo.
Across the globe, the referendum has resonated with officials in finance and central bankers warning of risks associated with Britain voting to remove itself from the EU. Last week Federal Reserve Chair Janet Yellen commented that the vote was a factor officials considered as they decided to maintain the US interest rates with no changes this month.
One-month indicated volatility for the pound vs. the dollar, a measure of price swings that was based on options, jumped as high as 32.1%, which is the most since Bloomberg started tracking the data back in 1996.
On Friday, Chief Executive Officer Jamie Dimon wrote a memo to staff: With surging trading volumes, a record 504,320 British pound futures contract was trading on the CME Group Inc.’s exchange as of 5:20 pm in New York, which is up 47% from the earlier high in 2014, based on the preliminary data on CME’s website. JPMorgan Chase & Co.’s currency-trading volumes were likely to reach three times what their normal daily volume would be.
Friday’s price moves are in line with what economists predicted in the case of a Brexit in a Bloomberg survey earlier this month. In that poll, most saw the pound plunging below $1.35 the day after the vote. While a weaker pound may boost exporters, it could increase prices for UK consumers, and complicate the Bank of England’s efforts to meet its inflation remit.
Senior economist at AXA Investment Managers in London, David Page commented, saying, “The UK is heading for an exit, and therefore currency markets are happy to trade sterling lower, which manages 666 billion euros or $740.39 billion.