Currency Traders Flee Euro, Pound as Brexit Fear Fuels Haven Bid

  • Euro has worst day in six years against yen; dollar rallies
  • Pound falls against most major peers before June 23 referendum

Currency traders in the $5.3-trillion-a-day market abandoned the euro and pound and piled into the dollar and yen, seeking safety before the U.K. votes on whether to leave the European Union.

The 19-nation euro dropped 2.8 percent against the yen, its worst day since 2010, as investors looked for refuge before the British referendum on June 23. The flight to haven currencies, including the yen, dollar and Swiss franc, follows decisions by the Bank of Japan to refrain from adding any stimulus and the Federal Reserve leaving interest rates unchanged Wednesday.

"The currency markets are being whipsawed by both worries over growth, exaggerated by central bank inaction, and then Brexit worries," said Quincy Krosby, a market strategist at Newark, New Jersey-based Prudential Financial, which manages $1.2 trillion. "Investors today are moving toward safe-havens, taking risk off the table."

Global currency volatility surged to the highest in four and a half years this week as traders awaited decisions from the Fed, BOJ, Bank of England and Swiss National Bank, while polls on a potential Brexit boosted pound volatility. The yen, which tends to gain during bouts of financial-market turmoil, has risen 15 percent against the dollar in 2016.

The dollar climbed as much as 1.2 percent to $1.1131 per euro, the biggest jump since November, and was at $1.1160 as of 11:57 a.m. in New York. The yen rose to as much as 103.55 against the dollar, the highest since August 2014. The franc touched a nine-month high against the euro. The pound fell against most of its major peers.

The JPMorgan Chase & Co. Group of Seven Volatility Index climbed to 12.79 percent on Tuesday, the highest since December 2011.

Both sides suspended campaigning on whether Britain should leave the EU after a lawmaker was attacked in her district. Jo Cox, a member of the opposition Labour Party, was hospitalized in a critical condition, with the Press Association reporting she had been shot twice Thursday in West Yorkshire, northern England.

“One driver of the market right now is risk aversion, pure and simple,” said Shahab Jalinoos, global head of foreign-exchange strategy at Credit Suisse Group AG in New York. “The market is still concerned about rising Brexit risk in the U.K."

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