- EUR/USD Exchange Rate Drops as UK Votes to Leave European Union – The decision has already sent financial shockwaves around the world.
- Euro Experiences Slides Across the Board – News of the upcoming loss of the EU’s second biggest economy bodes ill for the common currency.
- Safe Haven Demand sees US Dollar Rally Significantly – A swirling mass of uncertainty unleashed by the Brexit result see investors pile into USD.
- Forecast: Euro Possibly In for Further Loses, Fed Rate Hike Decidedly Postponed
The EUR/USD exchange rate saw a minor increase just as the EU Referendum polls closed last night as ‘Remain’ expectations were still fairly high. However, as soon as the first confirmed results came in from Sunderland indicating a Brexit, the pairing began its fateful slide.
At midnight the EUR/USD rate sat at 1.1368 but violently dropped to see its lowest point of just 1.0946 before 6am.
This morning has seen the rate climb to a more settled figure and currently tracks around 1.11.
Such a swing has occurred thanks to renewed Eurozone jitters regarding the UK’s Brexit. Uncertainty for the single currency is high as the EU wrestles with having to say goodbye to its second largest economy and safe haven demand swells.
As Friday’s European session progressed the EUR/USD exchange rate dropped to an intraday low of 1.0911 thanks to safe-haven demand and speculation the European Central Bank (ECB) will provide banks with cash injections.
Euro (EUR) Wounded as Eurozone Confidence Wanes
The common currency has seen significant deprecation thanks to the UK’s decision to leave the European Union as investors and policymakers mull the upcoming departure of the second strongest economy in the EU.
The only Euro pairings other than EUR/GBP that have benefitted from the result so far appear to be involving risk-correlated currencies, as you would expect, but gains have been marginal. Any time the market is feeling particularly uncertain, it tends to see investors shying away from any riskier, commodity-based currencies.
The Euro’s biggest drop in value has been against the Japanese Yen as safe-haven sentiment shot through the roof thanks to the Brexit result, followed by a -1.77% slide in the EUR/USD exchange rate due to the same reason. European stocks have also posted a 7% slide.
This is a tumultuous time for the European Union. Anti-EU sentiment was fostering before the UK went to the polls and the departure may lead to growing unrest. We already know some western member states were unhappy with the current situation so we shall have to look to the next few years to see what will happen with the post-war peace club.
US Dollar (USD) Rallies, Spurred on by Decidedly Risk-off Market Conditions
Safe-haven demand has seen the US Dollar skyrocket. The Buck has seen monumental appreciation in every one of its popular pairs bar the Japanese Yen.
Movements against the Yen have shone light on investor outlook today. The decision to Brexit is likely to push back US rate hike expectations, making USD a less attractive safe-haven option than JPY, illustrated by the USD/JPY rate tracking 1.82% lower this morning and JPY/GBP rallying by an incredible 7.7%.
Thanks to the aforementioned safe-haven investor sentiment and the uncertainty triggered by the Brexit, the prospect of contagion and a global economic slowdown may lead the US Federal Reserve to continue to hold any rate hikes until the dust settles. The already strong Dollar would also be boosted if the Fed went ahead with a July hike, causing all kinds of economic woes.
Forecasts Look Dire for EUR/USD Exchange Rate Unless EU Banks Enact Damage Control
As the result has only recently been announced, investors and analysts will be looking towards policy changes and emergency measures that are sure to be enacted to corral the markets away from the edge.
The Euro is likely to continue its limping post-Brexit march downwards unless market conditions recuperate. Movement should be expected soon as European banks will move towards enacting some damage control.
The only upcoming relevant ecostats arrive later today from the US. Durable goods orders and the University of Michigan confidence surveys will both shed light on confidence within the US economy and could serve to boost the US Dollar further. As it stands, the EUR/USD exchange rate is trading in the region of 1.1052.