The pound slid as a split in the UK’s ruling party over European Union membership increased the potential for an exit from the bloc. Stocks across the globe rallied, sending Dubai shares into a bull market, as oil rebounded and metals advanced.
The UK currency weakened the most in almost seven years against the dollar after London’s Conservative Mayor Boris Johnson said he’ll campaign for Britain’s exit from the EU, opposing Prime Minister David Cameron. The debate’s impact on broader markets was muted as the MSCI All Country World Index of shares headed for the highest close since February 4. Crude recovered Friday’s losses and iron ore rose above $50 a metric ton. The weekend ouster of China’s chief market regulator sparked equity increases in Shanghai and Hong Kong. Treasuries, gold and the yen declined.
While Britain’s currency was roiled by the spectre of an exit from the world’s largest single market, stocks maintained momentum after their best week since October pulled them up from near a 2 1/2-year low. The removal of Xiao Gang from the helm of the China Securities Regulatory Commission comes as leaders seek to attribute responsibility for January’s market rout, which undermined confidence in the authorities and rocked trading globally. Oil traders are considering how much of a boost prices would get from an output freeze led by Russia and Saudi Arabia.
“The fact that prominent members of the Conservative Party announced they will campaign for Britain to leave the EU likely underscored investors’ concerns that Brexit risks could increase from here,” said Valentin Marinov, head of Group-of-10 currency strategist at Credit Agricole’s corporate and investment-banking unit in London.
The pound fell 2.1% to $1.4102 at 12:05 pm London time, the biggest drop since March 2009.
The pound weakened even after Cameron announced a deal winning welfare curbs on Friday, and a measure of traders’ expectations for price swings in the pound against the euro during the next six months remained at the highest since 2011.
Cameron said on Saturday that he would fight to keep Britain in the EU, setting June 23 as the date for the referendum.
“Brexit will be one of the biggest events in 2016,” Evan Lucas, a markets strategist in Melbourne at IG, said in an e-mail to clients. “Boris Johnson’s decision over the weekend to support the Brexit campaign has caused the pound to move wildly.
The yen slipped 0.7% to 113.37 per dollar on reduced demand for havens. Japan’s currency remains the best performer this year among major peers, strengthening 6.1% after anxiety over the global economic outlook and monetary policy rocked markets, burnishing its haven appeal. The euro dropped 0.8% to $1.1036 yesterday.
Russia’s ruble led gains in emerging market currencies, advancing 1.6%, and South Africa’s rand added 0.5%.
Israel’s shekel added 0.2% versus the dollar before a central bank policy decision. While economists predict the central bank will keep rates on hold, currency forward-rate agreements for the next three, six and nine months and one-year interest rate swaps, have all dropped below Israel’s rate of 0.1%, indicating increased bets for a reduction in borrowing costs.