Pound Sterling Plummets In Value Against US Dollar
The British Pound Sterling is at a critical low against the US dollar after the results of a historic vote to leave the European Union, and the London Stock Market has nosedived.
Plummetting down, the pound is worth, at time of writing, $1.37, the lowest it has been since 1985. The drop – of more than 10% – occurred in literally minutes as the reulsts of the UK referendum to leave the EU were announced, seeing the comparative wealth of the UK slip enormously and driving the UK’s economy below France’s. For the first time in years, the UK is not the world’s fifth-most-powerful economy, and initial polls are showing that in the wake of Brexit uncertainty, it is unlikely to recover quickly.
In addition to this, the opening minutes of the FTSE 100 this morning saw abrupt falls of 8% before slowly crawling back up a little by mid-morning. Banks were hit hardest, with Barclays losing 30% of its share value before controlling the damage and reducing it down to just 17%, still by any counts a catastrophic loss.
The Bank of England released a statement saying that it was “monitoring developments closely” and assured the beleagured public that it was taking “all necessary action” to ensure financial stability.
The Managing Director of UFX.com, Dennis de Jong, was vocal in his shock at the collapse of the pound and the subsequent plummet from the FTSE 100.”The likes of this has never been seen before, the pound is in free fall and dragging the FTSE with it. Britain’s EU referendum has been looming over the global economy for months and that cloud got very dark all of a sudden. The stock market reviles uncertainty, but uncertainty is what Britain has given it – the shockwaves will be felt for some time and the warning lights are everywhere.”
The FTSE collapse was the biggest single-day slump since the fall of Lehman Brothers in 2008, at the beginning of the financial crisis.
However, the banks weren’t alone in being hit – the building industry was also badly caught, with Bovis Homes seeing their shares drop by more than 50%. UK Government bonds also shared in the collective collapse, with 10-year yields on their investments down more than 30 points, leaving them with only 1.018% profit, while the shorter-term, 2-year yields fell to only 0.233%, their lowest since 2013.
In the wake of the Leave vote, even oil prices have nosedived, with Brent curde oil now down by 5.2%.
Before the results, the value of th epound had actually risen, with traders placing their bets on a “Remain” win, but ultimately fell blazing when the Leave victory was announced. The change in value is the largest single-day fall ever seen by the pound sterling. The upshot of this is that it is easier to sell exports – of which the UK has startlingly little.
The pound fell surprisingly little against the euro today, however, dropping only 7% to around €1.20 per £1, as, not only did the pound fall, the euro fell too against the dollar. Falling 3.3%, the euro faced the biggest single-day fall since it was introduced today. Market experts are saying these moves are more extreme than the shifts seen in currency during the 2008 financial crisis, which, until now, was the defining financial crash of a generation.
The head of trading for ETX Capital, Joe Rundle, told the press this morning that “The decision to leave the EU has directly caused one of the strongest market shocks ever seen. The pound is at its worst in 30 years, and has undergone the biggest plunge in living memory. It’s not unreasonable to suggest that the market is panicking – the pound may have further to fall yet.
We have never seen anything like this, and the market will not stabilise over the coming hours and days.”
David Tinsley of UBS also threw his hat into the ring by saying that there was expected to be a “significant rise” in uncertainty on the UK and global financial markets, and that the MPC (the Bank of England’s Monetary Policy Committee) is expected to take action – which may include interest-rate cuts and other, more extreme measures.
Continuing his statement, Mr. Tinsley said that he “expects the MPC will slash policy rates all the way down to zero, and make considerable asset purchases, betweem £50-75bn, before February 2017.”
The Bank of England Governor, Mark Carney, backed these statements this afternoon, assuring people that the bank knows its responsibilities to the financial stability of the UK, and that they are unchanged, promising to “pursue them tirelessly”.
According to Mr. Carney, the Bank of England has employed massive contingency plans to weather the storm, and to mitigate the risks already inherent to a venture like this, adding that it was ready to inject an additional £250 billion into other banks via its normal channels.
Promising vigilance, he added “over the coming weeks, we will assess economic conditions and consider the most appropriate course of action.”
The European Central Bank also revealed today that it is monitoring financial markets closely, and is in contact with other central banks to prevent further collapse.
“The European Central Bank is prepared to provide additional funds in any necessary currency to protect our markets,” a bank spokesman added.