Sterling faces pressure as Brexit becomes real
Following Britain’s exit from the European Union, the pound sterling fell by more than 10% on June 24 as traders maintained their sell positions on the British pound. The British pound–US dollar pair fell to a low near the 1.32 handle as the British currency fell to 30-year lows.
Yields in the UK’s government bonds also dropped as investors sought to buy in low-risk securities amid a selloff in the foreign exchange markets.
The pound rallied in the previous session as traders worldwide offset their positions prior to the referendum result. The iShares MSCI United Kingdom ETF (EWU) was trading lower by close to 12% on June 24, 2016.
Losses recorded in the euro as well
The euro also recorded losses on June 24 as questions were raised on the future position held by the Eurozone. Anti-EU sentiment has been bolstered by the Brexit with the euro–US dollar pair falling by more than 2% on Friday, June 24.
The iShares MSCI Eurozone ETF (EZU) and the SPDR Euro Stoxx 50 ETF (FEZ) also fell by ~12%.
Japanese yen gains on risk-averse sentiment
The Japanese yen rose against the US dollar on June 24 in sync with heavy demand for safe-haven assets. The yen is highly correlated with safe-haven assets like gold. Investors were looking to invest in such securities, considering the high volatility in market indexes and turbulence in the global currency markets.
The dollar–yen exchange rate nearly touched 99 levels as the Nikkei dropped sharply on negative sentiment worldwide. While the iShares MSCI Japan ETF (EWJ) dropped by ~4% during the day, the broad-based Vanguard FTSE Developed Markets ETF (VEA) recorded huge losses on June 24.