Sterling Plummets to 30-Year Low after EU Vote

The value of the pound fell significantly overnight as market makers reacted to news of a Brexit vote hit markets

Emma Simon 24 June, 2016 | 10:14AM
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The Pound has fallen to levels not seen since 1985, as its value fell sharply overnight as the outcome of the EU Referendum became clear.

Although many investment experts had said a Brexit vote would have a negative effect on sterling, many were surprised by the scale of its collapse. At one stage it hit $1.3236 – a fall of more than 10% and a level not seen since the mid-1980s.

It also fell sharply in value against the euro – but the euro too has also weakened against the dollar amid fears of how a Brexit will affect the wider European Union.

In early trading the pound stabilised at around $1.38. Markets appeared reassured by David Cameron’s announcement that while he would resign he would not be stepping down immediately, and by a televised statement by the Governor of the Bank of England, Mark Carney, that the City had prepared for this eventuality.

He said:  “The Bank will not hesitate to take additional measures as required as markets adjust and the UK economy moves forward.”

Investors Look to Cash in on a Brexit-battered Pound

James Stanton, deVere’s head of foreign exchange said: “The Brexit victory has dragged the pound down, as was expected.  But the scale of the drop has been a shock.

“However, moving forward as the dust settles, it can be expected that GBP/USD resistance could be found at 1.35 with support levels found above 1.38.  Similarly, I believe that GBP/EUR will soon test levels at 1.20.

He added: “This news was always going to create a huge panic sell-off and bearing in mind the wider impact this will have on the Euro, many sensible investors will be seeking to look to cash in on a Brexit-battered pound.

“UK banks are stress-tested to deal with this kind of news, as Mark Carney, the Governor of the Bank of England has said this morning, and will offer a lot of support during these testing times. We can expect the pound to begin to stabilise over the next week, thereby creating better selling opportunities for investors and, indeed, the wider public. 

He predicted that by the end of the year the Sterling/Euro rate will recover closed to the £1.30 market, with the GBP/USD trading at 1.45.

He predicted that in the longer term it may be euro, rather than the pound, that is fundamentally weakened by Brexit, as it could serve as catalyst for full EU break up as other member countries call for their own referendums.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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