8 Ways Brexit Impacted the Financial World
U.K.’s recent exit from the European Union had a major influence on the country, with its impact ranging from the British music industry to immigration laws. But the impact of Brexit doesn’t end there, as global industries have seen noticeable changes as well. One of the most obvious industries immediately impacted is the global financial market, with the S&P Global Broad Market Index, the U.S. dollar and the Pound Sterling amongst the financial institutions most influenced by the decision.
S&P Global Broad Market Index
Within 24 hours of the U.K. deciding to leave the EU, the S&P Global Broad Market Index lost $2.08 trillion in what analysts consider one of the most dramatic and terrifying trading sessions in the past 10 years.
Price of Oil
Currently, oil prices are the lowest they have been in the past two months as investors continue to worry that the U.K.’s exit from the EU may slow down the global economy. Within this assumption, investors believe that a diminished global economy will decrease the demand for energy. Furthermore, because oil is one of the riskier assets, many financial investors are not willing to take such a risk when there is so much uncertainty with the global economy.
After the U.K. voted to leave the EU, the U.S. dollar jumped up 6.3% against the pound. Although the strengthening of the U.S. dollar may sound great to Americans, it is not particularly good for American businesses that export overseas.
For example, a strong dollar makes American exports and products more expensive which naturally makes these products less attractive to potential overseas buyers. That said, a strong U.S. dollar has the potential to make imports less expensive for American citizens, but it is still important for the U.S. to monitor the volume of exports to make sure that there isn’t recession within the manufacturing sector.
Another alarming impact of Brexit is the continuous tumble of the British pound. Immediately after the June 23rd voting, the pound saw a substantial drop – down from $1.489 to $1.32 against the American dollar – but economists were optimistic that this was simply an initial shock and the pound would quickly recover. Yet, this recovery has not occurred. In fact, on July 6th, the pound dropped to $1.28, which marks a 31year low. Economists believe that considering the pace of this decline, it is very likely the pound will drop to $1.25 before any kind of stability settles in.
With the British pound dropping in value, the Japanese yen has seen itself rising to a three year high against the pound (130.16 yen, which marks the pound down 2.3%). The yen has also found itself rising above both the U.S. dollar and the euro, with the dollar dropping 0.8% to 100.91 yen and the euro dropping approximately 1% to 111.56 yen.
Immediately after the U.K. left, , spot gold soared above $1,358.20 and continues to currently climb. It now passes $1,371.40, trading at $1,366.86 an ounce. U.S. gold also rose 0.8% to $1,369.60. However, the highest increase is gold priced in sterling at 1,069.36 pounds an ounce. It is the highest value in over 3 years.
Most financial analysts believe the increase in gold is due to the uncertain global economy. This has even more investors turning to safer assets like gold.
The rumor within the financial sectors is that Bitcoin has a chance to increase its value in the the post-Brexit financial market. The logic behind this notion is when the global market becomes unstable – as it is now – investors often turn to alternative currencies, which traditionally has been gold. However, Bitcoin has proved itself more reliable and stable to the point that has intrigued investors. In fact, an event like Brexit wouldn’t have as grand of an impact on finances because Bitcoin is a decentralized monetary system.
Britain’s FTSE 100 – an index of the 100 largest companies within the London Stock Exchange – just reached its lowest level in a week, dropping 1.3% to 6,463.59. Much of this drop is directly due to Brexit concerns, as increasing redemptions are causing London asset managers continual pause trading in property funds. Financial analysts predict that the property sector will remain as such for quite some time, as managers must now sell properties to generate enough money for these redemptions.
As you can see, the impact of Brexit extends far beyond the U.K., impacting economies on both a domestic and global level. And with the market’s current instability, changes continue to occur daily so it will be important to monitor the market to see how the impact of Brexit continues to unfold.
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