A bounce-back in risk assets of sorts has emerged, with equity markets recovering some of the previous day’s losses, a stronger GBP and stronger NZD and AUD dollars.
While a relief rally is quite typical after such a large sell-off, some of the response also reflects increased expectations of central bank or government policy action to counter the UK shock. The chance of further monetary policy easing is priced in across all rates curves in major developed countries.
In Japan, the Nikkei newspaper reported that a 20 trillion yen ($196 billion) stimulus proposal has been submitted to Prime Minister Abe by a senior official in his party.
In UK/EU developments, many EU leaders are urging Britain to invoke the necessary triggers to withdraw from the EU as quickly as possible, while the European Parliament voted for a resolution calling on Britain to begin divorce proceedings immediately.
In a message to her Parliament, Germany’s Merkel warned that Britain wouldn't be allowed to cherry pick the most beneficial parts of EU membership once it leaves the bloc.
On a more positive note, she called on the EU to debate all proposals that would bring its members closer together, including those that would return some EU powers to member states.
In the UK, Labour’s Corbyn refused to step down as leader after a heavy loss in a confidence vote of fellow party members.
In equity markets, Europe’s Stoxx 600 index rose by 2.6%, while the S&P500 is currently up 1%. The fear index or VIX is back below 20, after reaching as high as 26 in the aftermath of the vote.
Safe-haven currencies are weaker across the board, with JPY, CHF and the USD all underperforming. The dollar index is down about 0.3%, even as USD/JPY has risen 0.8% to 102.80.
The NZD strengthened over yesterday’s local trading session and reached a high of 0.7086 last night, but has since given up a lot of those gains, and it currently sits up 0.4% at 0.7030. We still see the current level as fairly stretched on short-term valuation metrics. The NZD and AUD have been joined at the hip over the past few weeks and that has continued, with NZD/AUD flat at 0.9540, with AUD/USD following the same pattern as NZD/USD. It trades this morning at 0.7365.
GBP has recovered to 1.3325, some 2 cents above its lows yesterday morning. EUR was up during yesterday’s trading but has come under some pressure since late last night. After peaking at 1.1112, it has been a steady decline down to 1.1050.
Get our daily currency email by signing up here:
Daily exchange rates
Select chart tabs
BNZ Markets research is available here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.