Investors have suddenly shifted to a “risk off” mode as a result of the recent shift in momentum towards Donald Trump being declared as the possible winner of the U.S. election in a couple of days’ time.
Politics dominated currency markets on Thursday as U.S. election worries kept the dollar weak against the yen while sterling rose more than 1% after a UK court ruled parliament would have to approve the start of Brexit talks.
Growing expectations that U.S. interest rates will rise before the end of the year lifted the dollar and bank shares on Thursday but took the shine off gold, one of the year's best- performing assets so far. Investors were already looking to U.S. jobs data on Friday as the dollar hit a four-week high against the yen and pinned Britain's sterling firmly to a three-decade low.
Crude oil closed below $44.00 a barrel, suggesting there are underlying weaknesses not only in the energy sector but in the global economy. It is becoming more clear the Brexit vote was just enough to slow demand from a path of market balance to the perception of continued oversupply.
It’s been a truly historic night for the UK as it appears that the people have voted to leave the European Union after a number of news channels confirmed that a win for remain is all but impossible. This comes after financial markets were convinced that the result would be a comfortable win for the remain side and betting odds supported it, with implied odds close to 90% for remain on Thursday.
Global stocks rose sharply today and sterling strengthened broadly while safe-havens including the yen and gold retreated, after polls showed support for Britain staying in the European Union regaining momentum before Thursday's referendum.
We saw another sell-off in crude oil on Monday which may have contributed to the losses in equity markets but I’m not convinced at this stage that this was the main driver, given that the relationship has weakened somewhat over the last couple of weeks.