Brexit breaks the pound

UK’s vote to exit the European Union (EU) shocked the financial markets both on a local, as well as on an international level. The result pushed UK Prime Minister David Cameron to announce his resignation, and threw the political ties out of balance.

UK citizens by now came to terms with the reality that their vote to leave placed the nation’s economy into major uncertainty, while the result shook the foundations of the EU as it was initially formed to avoid conflicts between its members after the second World War. Given that the referendum had everyones attention many weeks before last Thursday’s vote, more than 22 UK voters million gave their opinion.

Leaders and supporters of UK to leave the EU described the result as major step towards democracy and the beginning of a detached nation. But people who were in favour of keeping the ties with the EU there was anger and fear of what is to come. The result implies that UK will enter an extended period of discussions with the EU over trading, business, and also political terms.

David Cameron’s resignation was announced after his lost battle to avoid an exit from the now 27-nation union. Even though he pledged to do everything in his power to steer UK back into stability, he said that it is best for someone else to lead the nation into independency and also for that person to decide a suitable timing to proceed with the exit from the EU.

Financial markets worldwide nosedived after the result. Germany’s DAX30 fell by 8.8% on Friday to 9477.8, while the Japanese NIKKEI 225 and FTSE 100 on the same day plummeted by 7.5% and 5.1%. It is worth mentioning that the above markets’ reaction was more dramatic with losses on that day by more than 10%, before the Bank of England’s (BOE) Governor Mark Carney rushed to ensure the markets that he would do everything necessary to limit the impact of Thursday’s result. U.S. stock markets heavily fell the impact of the Brexit vote as the Dow Jones on Friday fell by 3.5% and ended the trading week at 17,259, its sharpest fall of the last ten months. S&P 500 also reduced by 3.8% to 2,020.01.

The GBP/USD reacted with force after the referendum result as it slipped by 8.1%. The currency pair’s rate at the end of the week’s trading session fell to 1.36793 and shocked the markets as it never reached so low for the last thirty years. The EUR/USD had a negative reaction with a 2% fall after concerns that the EU now entered a crisis both on a political and economic level.

The disagreements exposed from the referendum are not working in favour of the already-complex structure of Great Britain’s England, Scotland, Northern Ireland, and Wales. Scotland’s First Minister already took the opportunity to reiterate their decision to remain in the EU and said that there is now a high likelihood of a new Scottish referendum on independence from the UK. There are also rumours that the Irish might also seek to re-unite the island’s two parts. All these imply that the Brexit saga has not injected its last bit of volatility and so investors could chose to remain braced for more developments.

http://www.bbc.com/news/business-36611512

http://www.theguardian.com/politics/2016/jun/25/business-comes-to-terms-brexit-shares-jobs-prices

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