The suspense ends, Brexit it is
All hell broke loose today. Brexit is finally here! After a bitter and hard-fought campaign, which had an equal amount of glee and gloom, millions of UK voters decided to cut the European Union (EU) cord. The Pound along with global financial markets is bearing the brunt of this unforeseen departure. The period prior to the result looked straight out of a suspense-thriller movie. The polls managed to test the ultimate patience of people across the world, pushing them towards the edge of their seat. While there were momentary joys at either side of the camp, it all culminated today morning. On one hand, while the pro-exit voters will uncork the champagne today, the pro-remain voters will be left caressing their wounds.
Meanwhile, in the Euro zone, the Ifo survey data printed better than expected. Across the Atlantic, a couple of data points are up for release today. However, all this will be eclipsed by today’s shocking result.
Pound Sterling – UK Markets
The result of the historic EU referendum vote is out – Britain officially exits the EU. The news sent shockwaves throughout the globe, forcing every individual to sit up and take note. It is a sorrow-filled day particularly for all pro-remain supporters who will find the Brexit pill too difficult to swallow, followed by the resignation of the UK Prime Minister, David Cameroon. The event hit the global financial markets like a bolt from the blue and left behind a deep scar that will take a prolonged period to heal. The Pound, which has been whipsawed over the past few months, collapsed against all its major peers in the aftermath of the country’s vote and plunged against the US Dollar to its lowest point since 1985.
Investors now look forward with bated breath to see what happens next. Discussions are rife about when Britain will invoke Article 50 of the Lisbon Treaty, the official mechanism for withdrawal from the EU. Above all, the BoE might be forced to go into a fire-fighting mode with a rate cut or liquidity support for British banks.
US Dollar – US Markets
The US Dollar is trading on a stronger footing against most of its major peers this morning as Britain’s vote to leave the European Union triggered a rush into the safe-haven currency. The Pound crashed to its lowest level since 1985 as the world reacted to the shocking decision of Brexit. Meanwhile, there are a couple of economic releases in the US today. The preliminary reading of durable goods orders for May and the Reuters/Michigan consumer sentiment index for June are due later today. However, the impact of these data releases on the US Dollar will be minimal as investors will be pre-occupied with the Brexit news outcome.
Yesterday was a different story altogether. The greenback ended broadly lower against its rival currencies, as investor sentiment swayed back and forth concerning Britain’s EU membership vote. On the data front, the number of Americans filing for unemployment benefits fell more than expected last week to an almost a 43-year low level, indicating labour market resilience even though hiring slowed sharply in May.
Euro – European Markets
The shared currency climbed against the Pound this morning after a surprise victory for the Brexit camp sent the Pound plunging across the board. However, the Euro dropped in comparison to the US Dollar, witnessing its biggest one-day fall since the currency's inception, as the greenback surged on the back of significant risk aversion. On the data front, the German Ifo survey came in better than expected in June. The business climate, current assessment as well as the expectations index, all surpassed investor expectations by a wide margin. In other economic news, the final reading of French first quarter GDP rose in line with market expectations. Further, Spanish producer prices improved in May. On the other hand, Italian retail sales advanced at a less than anticipated pace in April.
Yesterday, the Euro strengthened against its major peers, fuelled by hopes that Britain will continue to remain a part of the EU. On the release front, German and Eurozone manufacturing PMIs exceeded estimates. However, their services PMI reports failed to follow suit and fell short of expectations.
Other Currencies – Highlights
The Canadian Dollar reversed its previous session gains and is trading lower against the greenback this morning amid a Brexit-induced strength in the US Dollar. Going ahead, market participants will look forward to Canada’s gross domestic product data for April and the RBC Manufacturing PMI data for June, both of which is scheduled to release next week.
In the previous session, the Canadian Dollar strengthened to a nearly two-week high against its US counterpart, boosted by higher oil prices and amid increased chances that Britain will stay within the EU. Initially after voting closed, a series of opinion polls favored Britons voting to stay in the EU and bookmakers’ odds indicated a further shift towards the “Remain” camp. Gains for the Canadian Dollar came this week after data showed that Canadian retail sales rebounded more than expected in April, mainly led by a rise in sales at gasoline stations.