Sydney – The Norwegian krone tumbled, leading declines in continental European currencies including the euro, as the UK’s shock decision to quit the world’s-largest trading bloc roiled global markets for a second day.
The common currency was likely to weaken as people start to question investments in the eurozone, Michael Hasenstab, fund manager for the $48bn Franklin Templeton’s Global Bond Fund, said in an e-mailed note.
The krone depreciated 2.3% to 8.5303 per dollar, while the euro slid 0.9% to $1.1014 at 12:01 p.m. London time, adding to losses from Friday.
Prime Minister David Cameron resigned without spelling out when the nation intends to leave the EU, while Nicola Sturgeon, the first minister of Scotland teased the possibility of a second referendum on independence from the UK after a majority of Scots voted to stay in the bloc.
Political turmoil continued over the weekend as a group of Labour Party leader Jeremy Corbyn’s team quit amid calls for his ouster.
“Given the political uncertainty that has emerged in the UK over the weekend, it’s unlikely that we’re going to have a sharp shift in sentiment over the course of the next few days,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corporation in London.
“That uncertainty is going to continue to play off into a risk-off sentiment more generally.”
The bleeding in financial markets continued with higher-yielding assets bearing the brunt as investors weigh up the impact of the UK’s vote on the global economy. The focus is shifting to central banks as they seek to minimize the damage in trading from Asia to the US.
The chances of a US rate increase by December have already dropped to 15%, from 50% before the Brexit decision.
After the pound, the krone led declines in major currencies as crude oil held near a one-week low amid the flight from risky assets. Brent crude fell 0.6% to $48.11 a barrel, after tumbling 4.9% on Friday, as most commodities dropped on the UK vote. Sterling plunged 3.5% to $1.3207.
“It’s no surprise to see Norway’s krone weaker given the hit to oil prices and heightened global growth worries from the Brexit decision,” Ray Attrill, Sydney-based global co-head of foreign exchange strategy at National Australia Bank said.
“Unless we see the dollar give ground or oil prices quickly recover, the currency is likely to remain a G-10 underperformer for the time being,” he said referring to the basket of 10 developed market currencies.
Losses across Europe
Among currencies active against the US dollar on Monday, declines of at least 0.8% were seen in Sweden’s krona, the Danish krone and both the Australian and New Zealand dollars.
The British referendum results surprised many investors who had bought higher-risk assets in the lead-up to the referendum amid optimism the “Remain” camp would prevail. Governor Mark Carney said the Bank of England could pump billions of pounds into the financial system, while the European Central Bank said it will give lenders all the funding they require to counter market turmoil.
The Federal Reserve said it was “carefully monitoring” financial markets. Bank of Japan Deputy Governor Hiroshi Nakaso said the central bank will work with counterparts to ensure foreign-exchange liquidity.
The pound will continue to come under pressure and should fall to the $1.20-to-$1.25 range by th end of the third quarter, said Sue Trinh, Royal Bank of Canada’s Hong Kong-based head of Asian foreign-exchange strategy.