The pound weakened, while the Norwegian krone led declines in European currencies as the UK’s shock decision to quit the world’s largest trading bloc roiled global markets for a second day.
Sterling dropped 2 percent to US$1.3404 at 6:51am yesterday in London and the krone slumped 2.7 percent to 8.5652 per US dollar, while the euro slid 0.8 percent to US$1.1028.
The common currency was likely to “weaken” as people start to question investments in the eurozone, Michael Hasenstab, fund manager for the US$48 billion Franklin Templeton’s Global Bond Fund said in an e-mailed note.
Photo: Reuters
The bleeding in financial markets continued with high yielding assets bearing the brunt as investors weigh up the impact of UK’s vote on the global economy. The focus is shifting to central banks as they seek to minimize the damage in trading from Asia to the US. The chances of a US rate increase by December have already dropped to 15 percent, from 50 percent before the Brexit decision.
“Political developments will largely set the tone for the markets over coming weeks and many questions remain unanswered,” said Jason Wong, a currency strategist at Bank of New Zealand Ltd in Wellington. “Uncertainty ahead suggests that a period of subdued risk appetite is likely to develop over coming weeks.”
The krone led declines in major currencies after oil extended losses amid the flight from risky assets. Brent crude lost as much as 1.3 percent, after tumbling 4.9 percent on Friday as most commodities dropped on the UK vote.
The yen, often bought in times of stress, added 0.5 percent to ￥101.70 against the greenback. It soared 3.9 percent on Friday and touched a 32-month high at ￥99.02.
Among currencies active against the US dollar yesterday:
Sweden’s krona weakened 0.9 percent. The Czech koruna, Hungarian forint and Polish zloty all slid at least 0.7 percent. The Australian and New Zealand dollars both lost at least 0.8 percent. The South African rand slumped 1 percent.
The British referendum results surprised many investors who had bought risk assets in the lead-up to the referendum amid optimism the “Remain” camp would prevail.
Bank of England Governor Mark Carney said the bank could pump billions of pounds into the financial system, while the European Central Bank said it will give lenders all the funding they require to counter market turmoil.
The US Federal Reserve said it was “carefully monitoring” financial markets.
The pound will continue to come under pressure and should fall to the US$1.20 to US$1.25 range by the end of the third quarter, said Sue Trinh, Royal Bank of Canada’s Hong Kong-based head of Asian foreign-exchange strategy.
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