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Pound plummets after early results in EU referendum Pound slumps after early results in EU referendum
(about 1 hour later)
The value of sterling has swung wildly on currency markets as initial confidence among investors expecting a vote to remain in the EU was dented by early referendum results. The value of sterling slumped on currency markets as initial confidence among investors expecting a vote to remain in the EU was dented by early referendum results.
Results from Newcastle, which showed a smaller victory for the remain camp than expected, and a thumping leave majority in Sunderland, reversed earlier gains to leave the pound down nearly 4% at $1.43 at one point, compared with $1.50 just after polling stations closed. Results from across the country putting the Brexit camp in the lead reversed initial gains to leave the pound down nearly 6% at $1.42 at one point, compared with $1.50 just after polling stations closed.
STERLING THROUUUUGH THE FLOOOOR pic.twitter.com/eTTQ0nnu5u The pound’s fall, which stunned investors, was one of the biggest ever, with others including Black Wednesday and Britain’s exit from the European exchange rate mechanism in 1992.
The earliermomentum for sterling was attributed to investors seizing on a YouGov poll that indicated a narrow victory for remain. Sterling rose above $1.50 following the poll for Sky News, which gave the remain camp a 52% to 48% lead over Vote Leave. The Japanese stock exchange proved to be more buoyant, opening up slightly from its previous day, but the futures market for the FTSE 100 index in London pointed to a decline of 6% – a significant reversal – when trading opens this morning as results from the referendum began to panic investors.
The earlier momentum for sterling was attributed to investors seizing on a YouGov poll that indicated a narrow victory for remain. Sterling rose above $1.50 following the poll for Sky News, which gave the remain camp a 52% to 48% lead over Vote Leave.
However, market watchers said the mood changed after the Newcastle result. Kathleen Brooks, research director at spread betting firm City Index, said: “Newcastle has announced the results of the vote, and even though remain has won, it only secured victory by a very narrow margin of 0.6%.However, market watchers said the mood changed after the Newcastle result. Kathleen Brooks, research director at spread betting firm City Index, said: “Newcastle has announced the results of the vote, and even though remain has won, it only secured victory by a very narrow margin of 0.6%.
“The pound versus the US dollar has been knocked below 1.50, as the market worries that the unofficial exit polls may not be reflective of the actual result. This uncertainty is leaving the market cautious around this huge psychological level for GBPUSD.” “The pound versus the US dollar has been knocked below 1.50, as the market worries that the unofficial exit polls may not be reflective of the actual result. This uncertainty is leaving the market cautious around this huge psychological level for the pound versus the US dollar.”
Jeremy Cook, chief economist at currency broker WorldFirst, said: “Sterling has collapsed … It can go a lot further as well.”Jeremy Cook, chief economist at currency broker WorldFirst, said: “Sterling has collapsed … It can go a lot further as well.”
Sitting in the dealing room of the currency firm, Cook watched sterling slide after the Sunderland vote came in. He has warned there could be a fall of “biblical” proportions if the vote is for Brexit. Sitting in the dealing room of the currency firm, Cook watched sterling slide after the Newcastle and Sunderland votes came in. He has warned there could be a fall of “biblical” proportions if the vote is for Brexit.
“I thought $1.50 was about the level we would have seen once a remain vote was confirmed,” Cook said. “We may have seen most, if not all, of the sterling positivity.”“I thought $1.50 was about the level we would have seen once a remain vote was confirmed,” Cook said. “We may have seen most, if not all, of the sterling positivity.”
But he warned there were “still significant risks for the pound; growth is so weak we don’t know the effects of the referendum campaigns on business, consumer and investor confidence and we don’t know how long that’s going to take to rebalance”. After the initial 4% slide, sterling recovered marginally to be trading 2% down at $1.45 in the early hours of Friday morning. But he warned there were “still significant risks for the pound; growth is so weak we don’t know the effects of the referendum campaigns on business, consumer and investor confidence and we don’t know how long that’s going to take to rebalance”.
Brooks added: “Nigel Farage was in fighting spirit when he gave a press conference earlier. It certainly didn’t seem like the Brexit issue was put to bed. If the margin of victory for remain is smaller than expected, then we could see further attempts to get the UK to leave the EU.”Brooks added: “Nigel Farage was in fighting spirit when he gave a press conference earlier. It certainly didn’t seem like the Brexit issue was put to bed. If the margin of victory for remain is smaller than expected, then we could see further attempts to get the UK to leave the EU.”
However, Cook warned of severe consequences if the result confounded recent polling. “On the other hand, the collapse of a leave win, something the market has almost fully discounted, could be truly biblical.” However, Cook warned of severe consequences if the result confounded recent polling. “On the other hand, the collapse of a leave win, something the market has almost fully discounted, could be truly biblical.” The later shifts in the pound early on Friday morning appeared to confirm those fears.
The FTSE 100 index added a solid 1.2%, or 77 points, to close at 6338, the highest since late April. The FTSE 100 index added a solid 1.2%, or 77 points, to close at 6338 on Thursday, the highest since late April.
The FTSE and pound have been buffeted by close opinion polls during the campaign but in the past week market sentiment has swung to show growing confidence in a vote to remain in the EU. The FTSE has rallied every day this week and by Thursday’s close was up 5.3% for the week so far.The FTSE and pound have been buffeted by close opinion polls during the campaign but in the past week market sentiment has swung to show growing confidence in a vote to remain in the EU. The FTSE has rallied every day this week and by Thursday’s close was up 5.3% for the week so far.
The FTSE’s gains were mirrored on other European bourses, with the leading share indices in Germany and France both closing up almost 2%. On Wall Street, the Dow Jones industrial average closed 1.3% up.The FTSE’s gains were mirrored on other European bourses, with the leading share indices in Germany and France both closing up almost 2%. On Wall Street, the Dow Jones industrial average closed 1.3% up.
During polling day on Thursday, the relative quiet following months of daily referendum news had made for a tense atmosphere on City trading floors, said Joshua Mahony, an analyst at the online trading company IG.
“Amid restrictions to broadcasters, there is an eerie feeling in the City, with a nervous energy evident as we await the fate of the nation,” he said.
“Whatever the result, volatility is likely to be the name of the game and rumours of private exit polls from the hedge funds means that there is likely to be some substantial swings as speculative positions are placed into a relatively illiquid market.”