Today marks the conclusion to a story which has been driving flows and shaping sentiment for weeks now; the UK’s EU membership referendum. Wit polling results roughly neck and neck just days ahead of the voting and bookies odds showing the Remain campaign to be the clear favourite, we has seen a strong relief rally in Sterling which soared against its major trading counterparts. However, once the voting was done and the data from private exit polls commissioned by various banks and hedge funds started to come in, we saw Sterling sharply reversing its gains to trade aggressively lower.
By 5am the news was in that according to BBC forecasts the Leave campaign were comfortably ahead and set to take the official announcement. These reports confirmed the large moves already taking place by that time and fuelled yet further heavy selling of Sterling which fell more than 10% against the US Dollar marking It’s biggest daily loss since records begain in 1971. In response to the situation the Bank of England say they are “monitoring developments closely” and will take “all necessary steps”.
The political reaction to these moves was swift and severe with PM David Cameron announcing his intention to retire from office by October leaving the path clear for Conservative lieutenant Boris Johnson to rise to head of the party.
Despite the parabolic moves in Sterling, shorty after the London open we saw massive profit taking on short moves with markets ripping higher highlighting the lack of liquidity and highly volatile nature of markets in the wake of this dramatic event. With the voting done and initial moves finished the real consequences for Sterling and indeed, markets in general, remains to be seen over the coming weeks as big money starts to move.
Of key importance also will be the response from global central banks in their attempts to calm markets and ease economic pain. The ECB noted before the voting that they stood ready to cushion the markets with huge liquidity in the event of Brexit and the BOJ too are likely to be called into action as the Japanese Yen soars on safe haven demand. One central bank that looks unlikely to be taking action however is the US Federal Reserve with markets quickly unwinding US rate hike expectations in the wake of this event.