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Friday, June 24, 2016

BREXIT - RISK OF FINANCIAL CONTAGION

The polls and the bookies were all wrong. The UK has voted to leave the European Union with a strong mandate. The markets trusted the polls and the bookie and had betted on Bremain. As a result the unwinding of the wrong bets will cause volatility in currency markets . Going forward the sterling and euro will be weak and neither the Bank of England or the ECB is expected to support the currencies because weak currency monetary policies are exactly what they wanted to stay competitive in global trades.

The real risk from Brexit is the financial contagion and not the economy that analyst had forecast will suffer. UK is only the world's fifth largest economy, and impact from its downturn will not affect the world.

The real risk could be the persistent weakness of Euro that will affect Asian trade. A weak Euro may push CNY to depreciate further fueling the contagion effect of a currency war.
All posts and charts are for educational and illustration purposes only

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