Brexit Turmoil Begins to Calm

BrexitThe UK’s financial markets have begun to calm after the turmoil of the EU referendum. The referendum’s narrow vote in favour of leaving the EU prompted violent turbulence and steep declines in most markets as well as in the value of the pound.

The pound had already been declining in value before the polls opened; primarily as a result of uncertainty. Shortly before the result was announced, when most predictions held that the UK was going to vote remain, the value of the currency rose against the US dollar to a high of $1.50. When the leave vote was announced on Friday morning, however, the value of the currency tumbled. It continued to fall, reaching a 31-year low on Monday. Now, however, the pound is showing the first potential signs of recovery, albeit small. It has risen against the dollar by 1.2%, reaching a value of $1.3382.

The stock market also suffered following the revelation that the UK had voted in favour of an exit from the European Union. The FTSE indexes fell significantly in the aftermath of the referendum, and Monday saw trading on some shares suspended following heavy losses. As with the value of the pound, however, a tentative recovery suggests that things may now be starting to stabilise.

As of mid-afternoon, the FTSE 100 index had gained 2.75% today and the FTSE 250 showed a slightly stronger recovery of 3.3%. This upward movement was primarily led by some of the industries that had originally been hit hardest in the immediate aftermath of the referendum. Notably, this includes the banking, air travel, and property sectors. Gold mining shares, on the other hand, had been performing well but have now abruptly become one of the FTSE 100’s main losing sectors following a fall in the price of gold.

European stock markets, which were also hit hard by the news that the UK had voted in favour of “Brexit,” are showing similar signs of recovery. For example, the Paris Cac index and Frunkfurt’s Dax were both hit even harder by the referendum result than London’s markets, but they have now made gains of 3.1% and 2.7% respectively.

Senior market analyst with with IG, Chris Beauchamp, said that the apparent stabilisation of markets “doesn’t change the short-term narrative of uncertainty and fear, nor the longer-term bear market in equities.” However, Beauchamp also said that “The FTSE’s unwillingness to stay below 6,000 is remarkable, and while the damage to individual shares is still immense, some of that has been repaired today.”

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