UK leaves the EU – Pound tumbles, Cameron resigns

UK financial markets braced for one of their most volatile days ever today, with sterling hitting a 31-year low in its biggest fall in history after Britons voted to leave the EU and David Cameron said has resigned as prime minister.

Government bond yields pointed to a new record low and UK and European stocks opened 8 percent lower, reflecting widespread alarm in the financial community over the uncertainty and volatility likely to be unleashed by the Brexit vote.

The pound had hit a 2016 high above $1.50 shortly after an earlier opinion poll showed an outcome in favour of ‘Remain’, but fell nearly 17 cents from that peak as it became clear that the ‘Leave’ camp had won the landmark referendum.

The British currency’s fall of almost 10 percent was historic, marking a decline greater than anything seen since free-floating system of exchange rates was introduced in the early 1970s.

It was even bigger than on ‘Black Wednesday’ in 1992, when billionaire financier George Soros was instrumental in pushing the pound out of the Exchange Rate Mechanism.

London bankers working through the night said they hadn’t seen anything like the volatility sweeping across UK assets.

HSBC cut its forecast for the pound to $1.20 by the end of this year, and several other banks said they expect the value of the British currency to fall further too.

The biggest swings, however, were in the foreign exchange market, where trading went on through the night – albeit in light volumes for much of that time – and sterling tumbled to its lowest against the dollar since September 1985.

I’m expecting central bank action, and the Bank of England will probably come in with liquidity provisions. A rate cut will likely come at some point too – not today, that will be panic.

The BoE said in a statement it is “monitoring developments closely”, having undertaken “extensive contingency planning and is working closely with Her Majesty’s Treasury, other domestic authorities and overseas central banks.”

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