Pound dropping again as Brexit impact sinks in
The British pound is sinking again as investors continue to digest the impact of the U.K.’s historic vote to leave the European Union.
The pound fell more than 2% early Monday against the dollar to below $ 1.34 as uncertainty swirls over the U.K. economy. That’s still above the low of around $ 1.32, its weakest level in decades, that it hit on Friday as results from the U.K. referendum were coming in.
Most Asian markets trended lower Monday, with Hong Kong’s Hang Seng Index down around 0.8%. Australian stocks swung between gains and losses.
Japan’s benchmark Nikkei was one of the few bright spots, gaining around 1.8%. The rise clawed back some of the nearly 8% loss the index posted Friday.
British voters chose to leave the EU in a referendum on Thursday. The U.K.’s decision to become the first country to drop out of the 28-nation bloc rattled markets worldwide on Friday.
The vote has far-reaching economic and political implications. Several EU leaders called on the U.K. to start the withdrawal process as soon as possible, to limit the uncertainty. But the U.K. is likely to wait before triggering the process.
Prime Minister David Cameron quickly resigned, saying it would be up to the new leader to negotiate with the EU. But it will take months for the Conservative Party to elect a new leader. Meanwhile, the main opposition Labour Party also fell into chaos after the vote.
Amid all that, the credit rating agency Moody’s said it may cut the U.K.’s rating because of the uncertainty.
The FTSE 100 in London ended Friday 3.2% lower. A broad gauge of European blue-chip stocks index sank around 6.7%.
U.S. stocks followed plunging global markets. The Dow ended the day down 611 points, or over 3.4%, while the S&P 500 lost 3.6%. The Nasdaq dropped 4.12%, and into correction territory.
One of the biggest unknowns is whether the U.K.’s vote to leave the union will trigger demands to leave from other countries, setting off a wave of turmoil.
“The question has much more to do with the potential European economic shock,” said Khiem Do, a fund manager at Barings Asset Management. “if Europe can find its footing and if the concern of [other] referendums in Europe will dissipate, I think European equity markets will bounce quite nicely.”
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