Britons surprised the world on Thursday (6/25/2016) with a narrow but decisive vote of 52% to 48% to exit the European Union. Global financial markets have experienced an uptick in short-term volatility driven by the unexpected action.
- In response to the vote, the British Prime Minister David Cameron has stepped down, saying he is not the right “captain” to steer the ship.
- The British pound dropped to $1.375, down almost 10% relative to the US dollar to its lowest level in 30 years.
- The Federal Reserve issued a statement saying they are “carefully monitoring developments,” but this almost certainly takes further interest rate increases off the table for the remainder of the year.
- The “British Exit” will take several years to achieve, but there is uncertainty that other countries may follow suit and also leave the EU.
- Scotland, which voted to remain, may now decide to break from Britain.
- And given the interconnectedness of the global economy, the ripple effect of this action is broad and far reaching. Global financial market risk is being repriced.
What Does This Mean for Americans?
- For long-term investors and retirement plans it means more short-term volatility and uncertainty, but those investors should remain focused on their long-term goals and not make any knee-jerk moves as things are likely to calm down beyond the initial reaction.
- The S&P 500 fell more than 3% and the Dow was down over 600 points, with banks and financials being particularly hard hit.
- Mortgage rates are currently at their lowest level in 3 years and with this news they could go even lower. There is even talk of an interest rate cut.
- US companies with a large percentage of sales in Europe are likely to be hurt by the strong dollar.
- But on a positive note, if you had plans to travel to Britain or Europe this summer, the exchange rate will be in your favor as the Euro and pound both take a beating relative to the dollar.