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Pound Slump Continues After ‘Brexit’ Result

By:
Peter Taberner
Published: Jun 24, 2016, 14:41 UTC

The UK pound has continued to fall after the shock EU referendum result, where British voters opted to leave the EU, overnight the GBP/USD exchange rate

Pound Suffers After ‘Brexit’ decision

The UK pound has continued to fall after the shock EU referendum result, where British voters opted to leave the EU, overnight the GBP/USD exchange rate declined by 10%, as the day after the events has unfolded, sterling is now buying $1.37, a slip from $1.40 reached mid-morning.

In comparison to the euro, the pound has remained at a relatively low level all day so far, and is buying 1.24 euros, down from 1,25 euros before lunchtime, the markets were taken hugely by surprise over the 51.9% to 48.1% result in favour of leaving the EU, as a remain outcome was anticipated.

So far, the FTSE100 had fallen by 8% in the initial reaction to the Brexit result, but has recovered itself to halve the deficit by losing 4% of its value, while the more UK centric FTSE 250 has fared far worse in a more telling picture of how the UK has been initially damaged by ‘Brexit,, as by early afternoon the index had 8%  sliced off its worth.

Also, the Bank of England is ready to pledge  more than £250bn of additional funds through its normal facilities to support business activity, and is able to provide substantial liquidity in foreign currency, if or when required.

Political Fall Out Escalates After Referendum Decision

 The political ramifications of the ‘Brexit’ decision continue to send shock waves around the UK, as the Conservative Party struggles to digest the shock announcement from David Cameron, that he will resign as prime minister and thus their party’s leader.

Ironically, Cameron’s decision to fall on his EU sword now may result in leading Leave campaigner and former Mayor of London Boris Johnson being elected as the new resident of 10 Downing Street, which he is currently the favourite to do so.

Jeremy Corbyn, leader of the opposition Labour Party, could also now face a no confidence motion, if the issue is allowed to be debated by the chairman of their parliamentary party, a secret ballot could go ahead on his future as early as next Tuesday.

As Scotland voted to stay in the EU, with 62% backing the remain campaign, Scottish First Minister Nicola Sturgeon has said that it was “democratically unacceptable” that Scotland would be taken out of the EU against their will.

And now the Scottish government would begin preparing legislation to enable another independence vote,  the last one took place in September two years ago.

Fitch Place UK Sectors in Negative Credit

 Fitch has said that most sectors in the UK are now credit negative, following the  decision to leave the EU, this was attributed to a forecast of weaker medium-term growth, and investment prospects, plus uncertainty about future trade arrangements.

Any failure to agree favourable trade pacts would also be a considerable negative for some sectors, as the UK’s status as a major international banking hub could be damaged, as some business activities shift to the EU.

Higher import costs due to the plummeting pound, and pressure on exports as a result of the potential imposition of tariffs, would be broadly negative picture for business, although the extent to which the UK would be able to limit net inward migration, could be significant for some asset classes.

The ratings agency also said that they will review the sovereign credit levels shortly, although they believed that ‘Brexit’ will result in the UK being moderately credit negative, which would have a knock-on effect on sovereign related ratings in infrastructure, public finance and structured finance, and government-guaranteed bank debt.

In the medium to long term, broader rating actions are to depend on a plethora of  factors, such as depth of  impact on GDP levels, the extent of sterling depreciation, and their subsequent effect on inflation, asset prices, unemployment and interest rates.

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