Investing.com -- GBP/USD pared some losses after crashing more than 10% to 31-year lows, as the Bank of England and other top central banks tried to soothe markets in the wake of a historic decision by voters in the U.K. to leave the European Union.
The currency pair traded in a broad range between 1.3231 and 1.4651 before settling at 1.3683, down 0.1194 or 8.03% on the session. With the crippling losses, the British Pound erased all of its gains from the previous week when it rose sharply against the dollar amid indications that a potential Brexit could be averted. The Pound Sterling is now down by more than 7% against its American counterpart since the start of the year when it opened above 1.47.
In London, U.K. prime minister David Cameron announced intentions to step down by October after the final tally in the controversial referendum showed that the Leave campaign prevailed by a 52-48% margin. While top global central bankers convened in Basel to execute an emergency contingency plan, Bank of England governor Mark Carney said the Bank has set aside £250 billion of additional liquidity and will act if necessary to help support the British economy.
"Inevitably, there will be a period of uncertainty and adjustment following this result," Carney said on Friday morning. "It will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world, some market and economic volatility can be expected as this process unfolds. But we are well prepared for this…The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward."
The precipitous fall in the Pound draws parallels to Black Wednesday on September 16, 1992 when the U.K. opted out of the EU's Exchange Rate Mechanism (ERM). For the session, GBP/USD plunged 4.5% to 1.76 before falling to 1.69 in the subsequent week, down nearly 10% for the period. Investor George Soros, who reportedly made a profit of $1 billion betting against the Pound nearly a quarter century ago, said earlier this week that the Pound Sterling could tumble as much as 20% if the Brexit vote prevailed.
Moody's, one of the top three credit rating agencies in the world, downgraded the U.K.'s bond rating from stable to negative in response to the Brexit results. In reaching its decision, Moody's cited weaker domestic economic growth and the possibility for reduced fiscal strength from the government.
Yields on the U.K. 10-Year plunged 29 basis points to 1.08, while yields on the Germany 10-Year fell 14 basis points to Negative-0.05%, after falling to fresh record-lows earlier in the session. In the U.S., yields on 10-Year Treasuries dropped 19 basis points to 1.56%, hovering near their lowest level on record.
Meanwhile, the Federal Reserve said in a statement on Friday morning that it is carefully monitoring market developments in cooperation with other central banks, in response to the results of the referendum. On Tuesday, Fed chair Janet Yellen told members of the U.S. Senate Banking Committee that a U.K. departure from the EU could have serious repercussions for financial markets worldwide.
"The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy," the U.S. central bank said in a statement.
Last week, the Federal Open Market Committee (FOMC) said the uncertainty surrounding the referendum played a role in its decision to leave interest rates unchanged at its June monetary policy meeting. The FOMC has held the target range of its benchmark Federal Funds Rate steady at a level between 0.25 and 0.50% in each of its four meetings this year.
The CME Group's (NASDAQ:CME) Fed Watch tool responded to Friday's market developments by taking a September rate hike off the table. The CME Group also said there is a 17.8% probability the FOMC could raise the Fed Funds Rate to 0.50-0.75% in December, down from 42.6% one day earlier. In addition, the CME Group said there is a 12.7% chance the FOMC could lower rates to the zero-bound range in September. Last December, the FOMC halted a seven-year zero interest rate policy by raising short-term rates for the first time in nearly a decade.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 2.5% to a three-month high at 96.70, before falling back to 95.63 at the close. The index posted its strongest one-day move in more than five years.