Sterling collapses as UK votes to Leave the EU; Stocks tumble

Financial markets woke to the shock news on Friday that the UK had voted to leave the European Union in yesterday’s historic referendum. The final results of the referendum count showed 51.9% of the British public voted to leave the EU versus 48.1% who voted to remain. The surprise outcome is in contrast to an exit poll out yesterday that put the ‘remain’ camp in the lead.

The pound tumbled to its lowest since 1985 as news started emerging that the ‘leave’ camp was on course to win the vote. Sterling touched a low of 1.3325 dollars, an 11.3% drop from its high of 1.5016 dollars at the start of Asian trading today when markets were anticipating a win for the ‘stay’ camp. The British currency had been rising all week on growing confidence that the ‘remain’ side was gaining a lead. However, the surprise turnaround in the final outcome has more than reversed those gains as the pound fell across the board on the currency markets today.

Sterling managed to stabilise in late Asian trading to bounce off multi-year lows. It was last trading at 1.3665 against the dollar, down over 8% on the day, while against the yen, it was down almost 11% at around 140 yen.

The euro was also hit by the UK vote outcome and fell to a 3-month low of 1.0910 dollars before recovering above the 1.10 level. Against the pound, the single currency soared to a two-year high of 0.8313 pounds but it slumped to a 3½-year low against the yen at 109.40 yen.

The yen also rose against the dollar, prompting fears of an intervention by Japanese authorities. The greenback briefly slipped below 100 yen to its lowest since November 2013, but had rebounded to around 102 yen in late Asian trading.

Meanwhile, the Swiss National Bank announced that it had already intervened in the markets to weaken the franc, pushing the dollar up from around 0.9520 francs to 0.98 francs.

Asian equities saw a sharp sell-off on the news that the UK will leave the EU with Tokyo’s Nikkei 225 index closing down by almost 8% and Hong Kong’s Hang Seng index down by 4.4%. European stock markets also fell sharply at the open with London’s FTSE 100 index dropping over 8% and the Frankfurt DAX plummeting by 9%.

Commodities such as oil fell sharply with WTI and Brent crude both down by over 5%. However, gold prices jumped as investors fled to safe-haven assets following the uncertainty created on Britain’s and the EU’s future direction. Gold prices were last up 5.4% at $1323.20 per ounce.

All eyes will now be on the future of the British government after David Cameron announced that he will resign as UK prime minister and will not lead the UK’s negotiations out of the EU. Markets are now watching for a statement by the Bank of England as well as a possible joint action by the EU and the G7 to calm financial markets.