By Margaret Yang, CMC Markets
We have seen extreme volatility on last Friday, as the results showed that majority of the Britons vote for ‘leave’ on EU membership in the referendum – a big surprise to the market. Huge amount of expectations were seen unwinding and the volatility quickly spread over to the global equities market. The S&P index future meltdown 5%, triggering the circuit breaker during the Asia trading hours – which is very rare.
Sterling tumbled over 1,700 points to 1.3226, a level that has not been seen since 1985. Bank of England stands ready to provide more than 250 billion BGP of additional funds to ensure financial and monetary stability. And a possibility of rate cut by BOE now become more likely, if weak sterling may lead to rising inflation.
US Treasuries, Gold and silver prices have broken through recent highs due to hunt for safety. The US 10 years treasury yield dropped to as low as 1.48%, a historical low. USD/JPY once dropped to 99.00 but quickly recovered back to 102.30 area on the day.
We have just gone through the peak of volatility and now market need to calm down and assess the risks or opportunities that will flow from this historic decision. In the near term, we will probably see rising demand for safety assets and strong US dollar.
The US dollar index has been pushed up higher, due to weakness in GBP and EUR. Investors are now pricing in less chance of another hike in US interest rate later this year, amid rising global uncertainties in a post-Brexit markets.
GBP/USD – 5 mins
Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.