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The turmoil in markets as votes were counted was most evident in the pound. As polling stations closed it surged to over $1.50 as markets expressed confidence that 'Remain' would prevail, but the optimism quickly diminished as results started to fall in favour of 'Leave'. It resulted in sterling hitting a 30-year low against the dollar as it went below $1.35, a level not seen since 1985. That sort of volatility hasn’t been seen since the height of the financial crisis in 2008 or since the pound crashed out of the Exchange Rate Mechanism in 1992.
The turmoil is likely to continue. The referendum result throws up so many uncertainties. A so-called ‘Brexit’ had been flagged as a key threat to global markets, and it has come to pass. It goes well beyond Britain’s borders. How will the rest of the EU react? Populist parties across the EU will only be emboldened to push for their own renegotiations and referendums.
The pound and the euro will remain under close scrutiny. Safe havens like the US dollar, gold, and, to the consternation of the Bank of Japan, the Japanese yen are likely to attract further flows. Will the Bank of Japan intervene to weaken its currency, which is damaging its efforts to boost its domestic economy?
How will other central banks react? Will the US Federal Reserve further delay its next interest rate increase? How will the European Central Bank react if the euro starts to come under pressure?
Central banks and governments will have to show leadership and try and calm markets. They will calm, but it could take some time. The fallout for the UK could continue for much longer than elsewhere.
The result of the referendum is unprecedented. It is impossible to predict what happens next. The momentum is currently with perceived safe havens: The gold price has surged, the Japanese yen has surged, the dollar is up against most currencies bar the yen.
Equities have fallen sharply in Asia overnight, and that pattern is set to continue into European and then US trading. There may not be many safe havens in these markets in the short-term.