- Pound Sterling (GBP) Exchange Rates Hold Position of Strength – Easing Brexit concerns push Sterling higher
- Euro (EUR) Exchange Rates Edge Higher – Rising bond yields support demand for the single currency
- EU Referendum to Dominate Trader Focus – Significant volatility forecast
With the EU referendum vote just a day away, the Pound continues to hold a position of strength versus its major peers after having appreciated significantly over the past few days.
Although EU referendum opinion polls are at odds with trader confidence, the market consensus that the UK will vote to ‘Remain’ has been overwhelming.
Meanwhile, the Euro made steady gains versus its peers, including the Pound, amid reduced odds of a Federal Reserve rate hike in the near-term.
Towards the close of Wednesday’s European session, the GBP EUR exchange rate was trending in the region of 1.3040.
GBP EUR Exchange Rate Ticks Lower but Sterling Supported by ‘Bremain’ Confidence
On the eve of EU referendum voting day the Pound edged lower versus a number of its major peers, although the downtrend has been fractional.
This is partly due to slightly reduced confidence of a ‘Remain’ victory now that fresh opinion polls have shown that the vote will be very close, but also in response to traders taking advantage of attractive selling positions following the Sterling rally.
If the UK does vote to leave the EU it may come as a shock to traders given that confidence of a ‘Remain’ victory has seen Sterling reach fresh monthly-highs.
A Brexit, therefore, would likely see a massive Sterling depreciation. Some analysts believe that the depreciation will be greater than that of the 15% drop seen on ‘Black Wednesday’ in 1992.
‘The value of the Pound would decline precipitously,’ said well-known investor George Soros. ‘It would also have an immediate and dramatic impact on financial markets, investment, prices and jobs. I would expect this devaluation to be bigger and also more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors.’
GBP EUR Exchange Rate Forecast: Euro Gains as Bond Prices Fall
One of the major impacts of Brexit uncertainty was to see developed nations’ bond prices surge, reducing yields. This was bad news for the European Central Bank (ECB), which is amid a massive asset purchasing programme.
However, the renewed confidence of a ‘Remain’ victory has eased demand on bonds.
Also supportive of Euro gains has been a weak US Dollar amid risk-on trade and reduced odds of a near-term Federal Reserve interest rate hike.
Fed Chairwoman Janet Yellen delivered several dovish speeches recently, stating that global economic conditions are not conducive of a cash rate increase.
Yellen also stated that the uncertainty regarding Brexit is clouding policymaker outlook.
With a complete absence of domestic data to provoke volatility there is a high chance that the single currency will hold gains versus its major peers.
This is especially true with Yellen due to make another speech later today. Most analysts expect Yellen to parrot previous concerns and continue to call for the need to remain patient.
GBP EUR Exchange Rate: Volatility Forecast as EU Referendum Vote Draws Near
Although traders are showing confidence that the UK will vote to remain in the EU, as evidenced by massive Sterling appreciation in the past few days, opinion polls paint a different picture.
Most analysts are resigned to the fact that the vote will be very close.
Today has already shown that trader confidence is slipping with the Pound failing to extend gains, so there is a high chance of volatility.
The Euro is also likely to endure price-swings in the build-up to the EU referendum result, while domestic data will be unlikely to be hugely impactful.
During Wednesday’s European session, the GBP EUR exchange rate was trending within the range of 1.2975 to 1.3062.
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