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| Version 19 | Version 20 |
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| Pound hits seven-year low after Boris Johnson's Brexit decision – as it happened | Pound hits seven-year low after Boris Johnson's Brexit decision – as it happened |
| (6 months later) | |
| 5.36pm GMT | 5.36pm GMT |
| 17:36 | 17:36 |
| Pound suffers biggest one day fall since Cameron became PM | Pound suffers biggest one day fall since Cameron became PM |
| A growing risk of Britain leaving the European Union has sent the pound tumbling. | A growing risk of Britain leaving the European Union has sent the pound tumbling. |
| Against the dollar the UK currency has suffered its biggest one day fall since prime minister David Cameron first came to power in 2010. | Against the dollar the UK currency has suffered its biggest one day fall since prime minister David Cameron first came to power in 2010. |
| It has fallen 1.72% to $1.4156, its worst daily performance since May 6 2010 - the day of the general election - when it fell 2.22%. | It has fallen 1.72% to $1.4156, its worst daily performance since May 6 2010 - the day of the general election - when it fell 2.22%. |
| It has also reached its lowest level against the US currency since March 2009. | It has also reached its lowest level against the US currency since March 2009. |
| Against a basket of currencies the pound is at its weakest since April 2014. | Against a basket of currencies the pound is at its weakest since April 2014. |
| The fears of a Brexit grew as London mayor Boris Johnson said he backed the UK leaving the European Union, while Moody’s added to the uncertainty by saying the country’s credit rating could be affected. ETX Capital currency trader Richard Wiltshire told Reuters: | The fears of a Brexit grew as London mayor Boris Johnson said he backed the UK leaving the European Union, while Moody’s added to the uncertainty by saying the country’s credit rating could be affected. ETX Capital currency trader Richard Wiltshire told Reuters: |
| Boris has upset the apple cart in going against his party leader. Everyone is now thinking it’s going to be a much closer-run thing than we previously thought. | Boris has upset the apple cart in going against his party leader. Everyone is now thinking it’s going to be a much closer-run thing than we previously thought. |
| On that note it’s time to close up. Thanks for all your comments and we’ll be back tomorrow. | On that note it’s time to close up. Thanks for all your comments and we’ll be back tomorrow. |
| 5.04pm GMT | 5.04pm GMT |
| 17:04 | 17:04 |
| European stock markets end higher | European stock markets end higher |
| A rebound in commodity prices has lifted European shares despite the uncertainty created by the prospect of the UK leaving the European Union. Hopes of further Chinese stimulus to boost its economy and thus increase demand for commodities lifted metal prices, while oil was also higher in the wake of last week’s proposals to freeze supply levels and talk that US shale output was falling. | A rebound in commodity prices has lifted European shares despite the uncertainty created by the prospect of the UK leaving the European Union. Hopes of further Chinese stimulus to boost its economy and thus increase demand for commodities lifted metal prices, while oil was also higher in the wake of last week’s proposals to freeze supply levels and talk that US shale output was falling. |
| The pound dropped sharply as London mayor Boris Johnson said he would campaign for a Brexit, but stock markets shrugged off the uncertainty. The final scores showed: | The pound dropped sharply as London mayor Boris Johnson said he would campaign for a Brexit, but stock markets shrugged off the uncertainty. The final scores showed: |
| On Wall Street, the Dow Jones Industrial Average is currently up 213 points or 1.3%. | On Wall Street, the Dow Jones Industrial Average is currently up 213 points or 1.3%. |
| Updated | Updated |
| at 5.38pm GMT | at 5.38pm GMT |
| 4.26pm GMT | 4.26pm GMT |
| 16:26 | 16:26 |
| Sterling is likely to continue falling even with the risk of Brexit, says Capital Economics, partly because the US is likely to continue raising interest rates while the Bank of England holds steady. The research group’s analyst John Higgins said: | Sterling is likely to continue falling even with the risk of Brexit, says Capital Economics, partly because the US is likely to continue raising interest rates while the Bank of England holds steady. The research group’s analyst John Higgins said: |
| Our forecast remains that sterling will fall further against the dollar this year, to $1.30 from around $1.41 now. Granted, the exchange rate has already fallen a long way in 2016, despite some stability in the gap between UK and US interest rate expectations. | Our forecast remains that sterling will fall further against the dollar this year, to $1.30 from around $1.41 now. Granted, the exchange rate has already fallen a long way in 2016, despite some stability in the gap between UK and US interest rate expectations. |
| And if the recent experience of Scotland’s referendum on membership of the UK is any guide, the exchange rate could rebound if it becomes clear to investors that the UK electorate will vote to stay in the EU. After all, sterling’s slide on Monday was similar in scale to the one that took place on the 8th September 2014, when a YouGov poll suggested Scotland might vote to secede from the UK – that slide had been completed unwound by the time the referendum took place eleven days later. | And if the recent experience of Scotland’s referendum on membership of the UK is any guide, the exchange rate could rebound if it becomes clear to investors that the UK electorate will vote to stay in the EU. After all, sterling’s slide on Monday was similar in scale to the one that took place on the 8th September 2014, when a YouGov poll suggested Scotland might vote to secede from the UK – that slide had been completed unwound by the time the referendum took place eleven days later. |
| Yet a week is a long time in politics, let alone four months. So now, as then, there is ample opportunity for uncertainty about the result of the referendum to weigh on sterling, especially given the UK’s reliance on foreign investors to plug its large current account deficit. Indeed, our forecast that sterling will fall to $1.30 is partly based on a view that a further decline in the UK’s currency is needed in order to rebalance her economy... | Yet a week is a long time in politics, let alone four months. So now, as then, there is ample opportunity for uncertainty about the result of the referendum to weigh on sterling, especially given the UK’s reliance on foreign investors to plug its large current account deficit. Indeed, our forecast that sterling will fall to $1.30 is partly based on a view that a further decline in the UK’s currency is needed in order to rebalance her economy... |
| There is another key reason why we expect sterling to lose more ground against the dollar, which is the relative prospects for monetary policy in the UK and US... | There is another key reason why we expect sterling to lose more ground against the dollar, which is the relative prospects for monetary policy in the UK and US... |
| The risk of a Brexit could make the Bank of England disinclined to begin to tighten monetary policy before the referendum and we think it is likely to tread cautiously thereafter. Our end-2016 forecast for UK Bank Rate is therefore 0.75%. While this is more hawkish than the rate implied in the market, it represents just one 25 basis point increase from the current level. | The risk of a Brexit could make the Bank of England disinclined to begin to tighten monetary policy before the referendum and we think it is likely to tread cautiously thereafter. Our end-2016 forecast for UK Bank Rate is therefore 0.75%. While this is more hawkish than the rate implied in the market, it represents just one 25 basis point increase from the current level. |
| By contrast, our end-2016 forecast for the US federal funds rate is a range of 1.0-1.25%, the equivalent of a further three increases of 25 basis points each. We continue to expect the Fed to tighten monetary policy much more rapidly than expected by the average investor as a tightening labour market in the US puts upward pressure on wage inflation. | By contrast, our end-2016 forecast for the US federal funds rate is a range of 1.0-1.25%, the equivalent of a further three increases of 25 basis points each. We continue to expect the Fed to tighten monetary policy much more rapidly than expected by the average investor as a tightening labour market in the US puts upward pressure on wage inflation. |
| 4.08pm GMT | 4.08pm GMT |
| 16:08 | 16:08 |
| Credit Suisse has taken a stab at what the UK could look like outside the EU: | Credit Suisse has taken a stab at what the UK could look like outside the EU: |
| #Brexit: What would the #UK look like post leaving the #EU? Here's the $CS research risk scenario pic.twitter.com/B2s6m2CpYZ | #Brexit: What would the #UK look like post leaving the #EU? Here's the $CS research risk scenario pic.twitter.com/B2s6m2CpYZ |
| Updated | Updated |
| at 4.11pm GMT | at 4.11pm GMT |
| 4.06pm GMT | 4.06pm GMT |
| 16:06 | 16:06 |
| Joshua Mahony, market analyst at IG said: | Joshua Mahony, market analyst at IG said: |
| There is no doubt that the Brexit referendum is rapidly becoming one of the biggest risk events of 2016 for financial markets. Boris Johnson’s decision to bolster the ‘out’ campaign with his support not only serves to undermine the fruits of David Cameron’s labour in Brussels, but clearly damages UK economic confidence, with sterling pounded across the board today. With the referendum set to take place in June, when the migrant crisis will be back into full flow, anxiety and fear will certainly push some voters towards a more isolationist stance. | There is no doubt that the Brexit referendum is rapidly becoming one of the biggest risk events of 2016 for financial markets. Boris Johnson’s decision to bolster the ‘out’ campaign with his support not only serves to undermine the fruits of David Cameron’s labour in Brussels, but clearly damages UK economic confidence, with sterling pounded across the board today. With the referendum set to take place in June, when the migrant crisis will be back into full flow, anxiety and fear will certainly push some voters towards a more isolationist stance. |
| Updated | Updated |
| at 4.06pm GMT | at 4.06pm GMT |
| 3.47pm GMT | 3.47pm GMT |
| 15:47 | 15:47 |
| David Cameron’s statement to the Commons is being covered on our politics live blog. | David Cameron’s statement to the Commons is being covered on our politics live blog. |
| Sterling seems to be picking up slightly as he speaks, but the questioning once he finishes is likely to be key. | Sterling seems to be picking up slightly as he speaks, but the questioning once he finishes is likely to be key. |
| 3.45pm GMT | 3.45pm GMT |
| 15:45 | 15:45 |
| As prime minister David Cameron stands up in the Commons to defend his EU deal, ING Bank suggests the pound could have further to fall. Strategist Viraj Patel said: | As prime minister David Cameron stands up in the Commons to defend his EU deal, ING Bank suggests the pound could have further to fall. Strategist Viraj Patel said: |
| We remain cautious in prematurely calling the end of the Brexit-induced GBP downside. | We remain cautious in prematurely calling the end of the Brexit-induced GBP downside. |
| The role of Brexit in steering recent sterling price action can be likened to a roller coaster warming up with some small twist and turns before an inevitable sharp drop. | The role of Brexit in steering recent sterling price action can be likened to a roller coaster warming up with some small twist and turns before an inevitable sharp drop. |
| Our short-term financial models show that even after today’s sharp move lower, only a 1.5-2.0% risk premium is priced into sterling/dollar. Moreover, other UK asset markets are yet to be trading with any meaningful discount, while UK activity data is also likely to show signs of a temporary slowdown over the coming months. Hence, there are still valid reasons why the UK’s in-out referendum poses further downside risks to the pound. | Our short-term financial models show that even after today’s sharp move lower, only a 1.5-2.0% risk premium is priced into sterling/dollar. Moreover, other UK asset markets are yet to be trading with any meaningful discount, while UK activity data is also likely to show signs of a temporary slowdown over the coming months. Hence, there are still valid reasons why the UK’s in-out referendum poses further downside risks to the pound. |
| Sterling’s recent immunity to opinion polls is a double-edged sword; while any under-estimation of Brexit risks by markets would limit near-term downside, the economic and political costs of a Brexit are likely to dawn on investors as we approach the June vote. As such, the pricing in of any Brexit risk premium could manifest itself swiftly and aggressively (while only fully showing up in the weeks or months leading up the vote). | Sterling’s recent immunity to opinion polls is a double-edged sword; while any under-estimation of Brexit risks by markets would limit near-term downside, the economic and political costs of a Brexit are likely to dawn on investors as we approach the June vote. As such, the pricing in of any Brexit risk premium could manifest itself swiftly and aggressively (while only fully showing up in the weeks or months leading up the vote). |
| Expect sterling implied volatilities to stay very elevated, particularly those covering the referendum date. Today’s price action in the pound risk reversals shows the “longevity” of Brexit risks (ie, the enduring nature of downside potential stemming from a UK exit). | Expect sterling implied volatilities to stay very elevated, particularly those covering the referendum date. Today’s price action in the pound risk reversals shows the “longevity” of Brexit risks (ie, the enduring nature of downside potential stemming from a UK exit). |
| 3.30pm GMT | 3.30pm GMT |
| 15:30 | 15:30 |
| Everyone wants their say on Brexit and after Moody’s, comes Fitch. | Everyone wants their say on Brexit and after Moody’s, comes Fitch. |
| The ratings agency says the impact of a vote for Britain to leave the EU is uncertain but could have significant risks, depending on the reaction of the remainder of the Union: | The ratings agency says the impact of a vote for Britain to leave the EU is uncertain but could have significant risks, depending on the reaction of the remainder of the Union: |
| Lengthy negotiations and uncertainty over UK firms’ future access to EU markets following a vote to leave in the upcoming referendum on EU membership (Brexit) would weigh on confidence and delay investment decisions. This would have a short-term economic cost, although the precise impact would be highly uncertain... | Lengthy negotiations and uncertainty over UK firms’ future access to EU markets following a vote to leave in the upcoming referendum on EU membership (Brexit) would weigh on confidence and delay investment decisions. This would have a short-term economic cost, although the precise impact would be highly uncertain... |
| We believe that in the event of a Leave vote, the authorities on both sides would try to avoid disrupting the deep economic and financial integration between the UK and EU by establishing a clear new relationship, including a trade agreement that preserves UK attractiveness for investment. Some tightening of the freedom of EU citizens’ to work in the UK would be likely. Avoiding large-scale, permanent disruption to trade relations, including services, could limit the long-term economic cost to the UK, with Brexit only moderately negative for the UK. | We believe that in the event of a Leave vote, the authorities on both sides would try to avoid disrupting the deep economic and financial integration between the UK and EU by establishing a clear new relationship, including a trade agreement that preserves UK attractiveness for investment. Some tightening of the freedom of EU citizens’ to work in the UK would be likely. Avoiding large-scale, permanent disruption to trade relations, including services, could limit the long-term economic cost to the UK, with Brexit only moderately negative for the UK. |
| But there would be significant risks, especially if the remaining EU members attempted to impose punitive conditions on the UK to deter other countries from leaving, or the UK sought very tough restrictions on EU citizens coming to work in the UK. | But there would be significant risks, especially if the remaining EU members attempted to impose punitive conditions on the UK to deter other countries from leaving, or the UK sought very tough restrictions on EU citizens coming to work in the UK. |
| Updated | Updated |
| at 3.34pm GMT | at 3.34pm GMT |
| 3.19pm GMT | 3.19pm GMT |
| 15:19 | 15:19 |
| Back with the pound, and the trade weighted index - its value against a basket of currencies - shows the UK currency is just above its 2014 lows but well above its lows of five years ago. | Back with the pound, and the trade weighted index - its value against a basket of currencies - shows the UK currency is just above its 2014 lows but well above its lows of five years ago. |
| 3.04pm GMT | 3.04pm GMT |
| 15:04 | 15:04 |
| US manufacturing weaker than forecast | US manufacturing weaker than forecast |
| Over to the US briefly and some weaker than expected manufacturing figures, adding to the idea that a rate rise from the Federal Reserve could be some way off. | Over to the US briefly and some weaker than expected manufacturing figures, adding to the idea that a rate rise from the Federal Reserve could be some way off. |
| The Markit initial estimate for the manufacturing purchasing managers index came in at 51 for February compared to forecasts of 52.3 and last month’s figure of 52.4. This is the lowest reading since October 2012. | The Markit initial estimate for the manufacturing purchasing managers index came in at 51 for February compared to forecasts of 52.3 and last month’s figure of 52.4. This is the lowest reading since October 2012. |
| The news has supported equity markets, with the Dow Jones Industrial Average now up 1.3% or 221 points. | The news has supported equity markets, with the Dow Jones Industrial Average now up 1.3% or 221 points. |
| 2.53pm GMT | 2.53pm GMT |
| 14:53 | 14:53 |
| Here’s our news story on Moody’s EU referendum warning: | Here’s our news story on Moody’s EU referendum warning: |