The British pound remained under pressure after its post-Brexit drop, and may continue to fall ahead of a possible interest rate cut by the Bank of England. BOE Governor Mark Carney made a speech on Thursday indicating that the central bank is likely to cut interest rates from the current record low of 0.5% in reaction to last week’s Brexit outcome. His dovish comments helped a rally for both UK and US stocks, while the British pound came under renewed pressure.
In the aftermath of Britain’s historic vote to leave the European Union, the global markets have reacted in extreme and mixed ways. Risk assets including stocks have surged along with government bonds, two asset classes that historically suggest different outlooks for economic growth. Rising bond prices have sent interest yields on the perceived safe havens of government bonds to fresh lows. Among the series of record-breaking moves last week were the new lows breached by the yields on 10 and 30 year U.S. Treasuries. What are the markets telling us? Is there a shift under way, from the initial flight to safe-haven assets to a flight to quality? Will US assets benefit from the uncertainty and turmoil surrounding Britain and the European Union?
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