Sterling finds respite after the pounding

After four days of being hammered for Brexit, the British pound finally found some respite yesterday.
After four days of being hammered for Brexit, the British pound finally found some respite yesterday.PHOTO: EPA

After four days of being hammered for Brexit, the British pound finally found some respite yesterday as investors began to feel that the historic sell-off in sterling had been overdone.

European shares also opened higher for the first time since Britain voted last week to secede from the European Union, while Asian bourses received a boost from signs that central banks in the region are taking action to stabilise markets.

The pound strengthened slightly to US$1.33 yesterday after settling at a 31-year low of US$1.32 on Monday. It also strengthened to $1.80 against the Singapore dollar after weakening to $1.79 on Monday.

Mr Daniel Chia, co-founder of investment app Call Levels, said he saw a big switch in sentiment towards the pound yesterday. Investors can use the app to set alerts for when financial assets hit a certain price level.

On Monday, 90 per cent of the users looking at the pound wanted to be alerted if it hit levels of between US$1.25 and US$1.30.

 

However, just a day later, 69 per cent of alerts created for the pound were above US$1.32.

"The overall indication seems to point to the possibility that our users are really interested in where the markets might move in relation to Brexit's aftermath, but no one is certain where things will go," Mr Chia said.

In the absence of clarity from Britain itself, punters in Asian stock markets took cues from central banks in the region.

South Korea launched a 20 trillion won (S$23.2 billion) fiscal stimulus package yesterday while reports said Japanese Prime Minister Shinzo Abe is being urged to consider one in the wake of Brexit.

Tokyo edged up 0.09 per cent, Seoul gained 0.5 per cent, Shanghai added 0.58 per cent and the local benchmark Straits Times Index rose 26.68 points, or 0.98 per cent, to 2,756.53.

Hong Kong, however, dipped 0.27 per cent and Sydney fell 0.7 per cent.

In Europe, stocks advanced in early trading yesterday, reversing a two-day drop as investors speculated that central banks in the region may take action to bolster market confidence in Brexit's wake.

London's FTSE 100 opened 2 per cent higher while the European Stoxx 600 index was 2.3 per cent higher in early morning trade.

Still, Mr Mike Amey, portfolio manager of investment management firm Pimco, said in a note to clients this does not mean markets will hold these levels, and "there will no doubt be bouts of volatility in the days and weeks ahead".

"But at least today's market reaction suggests that Brexit could be more a local rather than globally systemic event."

A version of this article appeared in the print edition of The Straits Times on June 29, 2016, with the headline 'Sterling finds respite after the pounding'. Print Edition | Subscribe