Global Currency Markets Since Brexit

by: Daryl Montgomery


Currencies were hardest hit asset glass after the Brexit vote.

All European currencies went down against the U.S. dollar.

The impact of currencies outside of Europe was mixed.

It's been one month since the BREXIT vote in the UK on June 23rd. Even though the doom and gloomers claimed a vote for Leave would potentially be disastrous for the market, stocks and bonds actually benefited. Currencies had a more mixed record. All European currencies went down against the U.S. dollar. Only some currencies outside Europe went down though, and others went up. The U.S. dollar was over all the prime beneficiary of the BREXIT vote.

If we look at a chart with currency performance one month before and one month after BREXIT, we see on the day of the vote, all the major European currencies were outperforming the U.S. dollar. The dollar (DXY) was down 2% on a monthly basis, the day of the vote. One month later, the U.S. dollar was up 2% (on a two-month basis) and was doing better than all European currencies. The dollar and euro effectively switched places during this time frame. The euro (NYSEARCA:FXE) had been up 2% and was then down 2%. It could have been much worse. The Norwegian krone (LNOK in the UK) and Swedish krona (NYSEARCA:FXS) were up almost as much as the pound, the day of the vote, but wound up down around 3% and 4% respectively a month after it. The Swiss franc (NYSEARCA:FXF) was up more than 3%, but wound up flat thirty days on.

The biggest currency move took place in the British pound (NYSEARCA:FXB). It was up around 1% the day of the vote, having rallied from being down 4% a week earlier based on polls indicating that BREXIT would fail. The currency markets went into shock when the votes were counted and by the next Monday, the pound was down 10%. Several days after that it was down 12%. A month after, it was down almost 11%. The chart below details the currency moves, with the black line being the U.S. dollar, the red line, the Swiss franc, the blue line the euro, the orange line the Norwegian krone, the yellow line the Swedish krona and the bronze line the British pound. The vertical bright red line is the day of the BREXIT vote.

European Currencies Before and After BREXIT

Currencies outside of Europe had a somewhat different reaction. All were up on the month versus the U.S. dollar the day of the vote. The Brazilian real (NYSEARCA:BZF) and the Japanese yen (NYSEARCA:FXY) both rallied after the vote, but dropped later on. The Australian dollar (NYSEARCA:FXA), the Canadian dollar (NYSEARCA:FXC), and the Chinese yuan (NYSEARCA:CYB) fell on the news. A month later, the real was up more than 10% and the yen and Australian dollar up around 4% compared to the U.S. dollar's rise of 2%. The Canadian dollar and yuan were down about 2%, so they acted more like the European currencies. In the chart below, the real is the blue line, the yen the red line, the Australian dollar the bronze line, the U.S. dollar the black line, the Canadian dollar the orange line and the yuan the yellow line. The bright red horizontal line is the day of the BREXIT vote.

Non-European Currencies Before And After BREXIT

The major moves from BREXIT are probably over by this point in time, but that doesn't mean any significant counter move is likely soon. The market has probably reached a new equilibrium (or will shortly) and will approximately maintain the relative values it has now. What could interrupt this is a major political or economic event. Barring that, mostly sideways movement should continue for several more weeks, with the U.S. dollar relatively strong and the British pound weak. Currency investors should wait until then to take positions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.