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Brexit

Sterling down almost 12 per cent to 30-year low on Brexit; yuan trades at five-year low

PUBLISHED : Friday, 24 June, 2016, 8:57am
UPDATED : Friday, 24 June, 2016, 2:17pm

Pound sterling fell by 11.47 per cent in Friday morning trade to its lowest level in 30 years after Britain voted in a referendum to leave the European Union, while analysts believe the currency has little hope of bouncing back in the near term.

Chinese yuan also fell to a five year low with onshore yuan down 0.54 per cent to trade at 6.6101 before bouncing back to 6.6091 yuan per US dollar at 12.30am while the offshore yuan was down 0.79 per cent to trade at 6.6360 yuan per US dollar.

Sterling traded at US$1.3223 at 12.30pm on Friday when British media declared the result of the Brexit vote in favour of leaving the European Union. That was down 12 per cent from just a few hours earlier when it had hit this year’s high at US$1.5018 after leading Leave campaigner Nigel Farage said it looked as though “Remain” had “edged” the vote.

The currency started to fall sharply from 8am onward when vote results showed the “Leave” camp taking the lead.

Within four hours, the pound swung from this year’s high to trade at the lowest level since 1985.

Sterling pound to Hong Kong dollar also dropped to a 30-year low at HK$10.26, down 11.29 per cent, while each pound trade at 8.8288 yuan, down 9.6 per cent.

Brexit is certainly bad in the short term for equities and many will try to figure out how much of a blow this is to growth prospects
Brett McGonegal, Capital Link International

Sterling also fell against the euro with each euro traded at £0.8157, with the pound weaker by 6.64 per cent Friday morning. The sharp fall of the pound Friday morning has wiped off the gains of 5 per cent seen this week against the US dollar.

Brett McGonegal, the chairman and chief executive of Capital Link International, said the Brexit result would lead to a weaker sterling in future. “This is certainly a surprise as did I not think they would exit. The world is being challenged by a rise of nationalism The markets are reacting to the extreme uncertainty that the exit raises,” McGonegal said.

“Brexit is certainly bad in the short term for equities and many will try to figure out how much of a blow this is to growth prospects. The pound will continue to trade lower after the hedges get squared at these levels. Looks like the Bank of Japan is stepping in to try and offset the rise of the yen. The euro will weaken with the pound and the US dollar will firm up and rise, hurting emerging markets,” he said.

Japanese yen became a safe haven and rose to a two and half year high against the greenback with each US dollar worth 99.11 yen early on Friday before bouncing back to 100.74 yen, up by 5.34 per cent.

The People’s Bank of China set the midpoint of the yuan weaker by 0.17 per cent at 6.5776, with traders allowed to trade 2 per cent either side of the midprice.

Jasper Lo, chief executive of King International, said there was heavy selling pressure on the sterling after the early vote result was in favour of the leave camp.

“The early vote result in Sunderland shows a majority of voters chose to leave the EU. This has turned around the sentiment immediately as the sterling over the past week has been trading based on traders believing the British would vote to stay in the EU,” he said.

“The sterling will move alongside with the vote result announcement today.”

Lo said the strong selling pressure was also related to some hedge funds, including George Soros, that have been positioning to short sell the currency.

“This would add selling pressure to the yuan which is now linked to a basket of currencies including the sterling. The yuan is likely to go south with the pound. The only safe haven would be the Japanese yen which is traditionally a safe bet when the western currencies would go down,” he said.

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