In the wake of the generational-defining British vote to leave the European Union, the G7 is highly likely to issue a statement within the next few hours. We expect in that statement they will vow to “take all necessary steps” to ensure stability in the financial markets.
While sterling is ground zero for the currency market volatility, we expect this commitment will entail, if necessary, a joint currency intervention by the main central banks including, in addition to the Bank of England, the Federal Reserve, the European Central Bank, the Bank of Japan, the Swiss National Bank and others central banks, to dampen down destabilizing currency moves in the wake of the British Brexit vote.
While the central banks are under no illusion they can turn the direction of the currency movements, the intervention would aim to slow excessive currency volatility, which may threaten instability across the broader international financial system.
Final drafting of the likely G7 statement is being made that much easier by the fact that the world’s central banks are currently in Basel for the start of the Bank for International Settlement’s annual meeting in Basel.