Surprise Brexit vote unleashes scramble for dollars

Fri Jun 24, 2016 4:51pm EDT
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By Richard Leong

NEW YORK (Reuters) - Britain's historic vote to leave the European Union sparked traders on Friday to scramble for dollars in an effort to buy U.S. bonds and to exit dollar-based bets based on U.K. voters favoring to stay in the bloc.

The dash for greenbacks drove up the cost for Wall Street to fund its dollar-based trades to the highest in nearly three months.

The stunning outcome in Thursday's Brexit referendum increased reluctance among money market funds and other cash investors to lend as global stock markets plunged.

"The front end of the market had been illiquid," Tom Simons, money market strategist at Jefferies & Co in New York said of reduced lending with the looming end of the second quarter. "Now it's a lot worse."

The U.S. Federal Reserve and other major central banks on Friday sought to assure investors by saying they are prepared to provide dollars through existing liquidity arrangements.

The interest rate in the $3.8 trillion repurchase agreement market, where traders raise short-term cash from investors by pledging securities as collateral, was last bid at 0.80 percent, which was the highest since 0.85 percent on March 31, according to ICAP.

The overnight repo rate was quoted above 1 percent earlier Friday before retreating.

On Thursday, before the surprise outcome of the U.K. referendum, the repo rate ended at 0.60 percent.   Continued...

Screens, one of which displays the rate of the British pound which drops against the US dollar (R) after the British referendum, are seen in a trading room in Paris, France, June 24, 2016. REUTERS/Jacky Naegelen