The pound’s tumble against the yen was also stark. Singapore’s stock exchange .SGXL.SI said it has raised the amount of cash firms must pledge to cover trading positions while central banks stood by to pump in emergency cash.
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The US dollar weakened to a seven-week low during the day as a reduced likelihood of the United Kingdom voting to leave the European Union returned focus to Federal Reserve policy makers’ concern about economic headwinds and a gradual pace for interest-rate increases.
Mark Carney, said he would “not hesitate” to take action to steady the markets, adding that it would make an extra £250bn available to the banks.
Earlier, British Prime Minister David Cameron, who campaigned to stay in the European Union said he will step down by October.
The 8.5 per cent plunge on Friday leaves the currency on course for its worst day on record, and compares with the 4.1 per cent drop on 1992’s Black Wednesday, when the pound was forced out of Europe’s exchange-rate mechanism – the previous biggest daily drop.
Market confidence took another blow after a bigger-than-expected vote by Sunderland to leave the EU. The fall was even larger than during the global financial crisis and the currency was moving two or three cents in the blink of an eye. The pound capitulated to a session low of US$1.3224 after both the BBC and ITV projected the totals would land in favour of leaving the trade bloc. It also cut its forecast for the euro for the end of the year to $1.10 from $1.20 previously.
Analysis by the London Economic found Sterling’s historic fall came as a hammer blow to the United Kingdom economy. The British pound collapsed no less than 18 United States cents, easily the biggest fall in living memory, to hit its lowest since 1985.
Yet the euro was under pressure against most other currencies as investors fret Brexit could spark anti-establishment movements in other European countries, some of which have already seen decline in traditional political parties. A new election is planned in Spain on Sunday after an inconclusive vote last December. In that survey, most saw the pound plunging below US$1.35 the day after the vote. Sterling has extended gains to fresh six-month highs above 1.4900 against the dollar with EUR/GBP trading just below 0.7650. Should safe-haven demand persist for a sustained period, the Euro may depreciate further.
First indications of the result will come at 21.00 GMT with the latest YouGov poll. “We are clearly seeing a very dramatic flight to safe-havens across markets in Asia”, Bill O’Neill, Head of UK Investment Office, UBS Wealth Management, said.
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“The bottom line is the initial directionality that we’ve seen on the back of the vote in our view can persist”, said Shahab Jalinoos, global head of FX strategy at Credit Suisse in NY. If the yen spike continues, given that the USD/JPY dropped well below 100.00 at one point on Friday, this could very well fulfill the prerequisites for an impending currency intervention by Japan in attempts to stem the yen’s rise.
