Emerging Asian currencies slid in volatile trade on Friday, driven by a plummetting pound and a rush to safe-haven assets as the "leave" camp...
Emerging Asian currencies slid in volatile trade on Friday, driven by a plummetting pound and a rush to safe-haven assets as the “leave” camp took a commanding lead in Britain’s referendum on European Union membership.
The Singapore dollar and the South Korean won were set to see their worst day in nearly five years, although there was some caution over possible intervention by authorities to support the currencies.
Earlier, most regional units rose with the won and Malaysia’s ringgit to near two-month peaks as opinion polls showed the “Remain” supporters gaining momentum. But emerging Asian currencies turned weaker as early counts indicated Britain was on the brink of deciding to leave the EU.
The pound fell rapidly and global equities were hit hard. The safe-haven yen jumped more than 4 percent and most emerging Asian government bond prices slightly rose.
“It’s risk-off, so there’s buying of bonds, selling of equities and emerging market currencies, and buying of the yen,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. Risk assets, including Asian currencies, suffered heavy losses because they had priced in the probability that Britain would vote to stay in the union, analysts said.
“The strong reaction comes from the stronger lead of “Leave”. Prior to today, the market had priced in a “Remain”, said Nordea Markets’ senior analyst Amy Yuan Zhuang in Singapore.
The Singapore dollar lost 1.8 per cent against the US dollar by mid day, which would be the largest daily loss since September 2011, according to Thomson Reuters data.
Traders rushed to dump the currency which has until recently outperformed. Before Friday, some analysts said the currency’s nominal effective exchange rate (NEER) was close to the top of the central bank’s policy band.
The city-state’s currency pared some of its earlier losses with growing caution over possible intervention by the Monetary Authority of Singapore to limit its losses.
The won had initially risen 0.3 percent to 1,147.1 per dollar, its strongest since May 3. But the currency quickly reversed direction to fall 2.2 percent, its largest daily depreciation since September 2011.
Traders were wary of possible official intervention to support the won, but the authorities were hardly seen in the market yet.