- Pound Sterling (GBP) Exchange Rates Advance despite Divergent Opinion Polls – Traders confident UK will vote to remain in the EU
- US Dollar (USD) Exchange Rates Soften on Improved Market Sentiment – Traders flock to high-yielding assets
- GBP Exchange Rates Forecast to Fluctuate – EU referendum uncertainty is likely to sharpen as we draw ever closer to Thursday’s vote.
- Yellen Speech to Provoke USD Volatility – Most traders expect the Fed Chief to parrot the need for patience and caution
Renewed trader confidence that the UK will vote to stay in the EU, following supportive opinion polls over the weekend and betting odds stacked in favour of ‘Remain’, caused the GBP USD exchange rate to rally exponentially.
Even the latest set of polls, which indicate the vote will be much closer, has not been enough to reverse GBP USD exchange rate appreciation thus far during today’s European session.
GBP USD Exchange Rate Extends Gains as Bookies Back ‘Remain’
During Monday’s trade the GBP USD exchange rate advanced by over 3.5% after EU referendum opinion polls over the weekend suggested that ‘Remain’ would be victorious.
This eased market tensions that had been brewing in recent weeks with the ‘Leave’ campaign gathering momentum.
Sterling continues to advance today. This is despite fresher opinion polls indicating that the vote will be very close.
Bookies’ odds continue to suggest that the UK will remain a member of the EU, further boosting the appeal of GBP.
‘As far as the money’s concerned, it looks like Brexit is beginning to fall at the final hurdle,’ said Jessica Bridge, a spokeswoman for Ladbrokes.
Several investors have highlighted similarities with the Scottish referendum, as Naomi Totten of Betfair explains;
‘This market continues to mimic the pattern of the Scottish referendum, where historical confidence in the eventual ‘No’ vote slipped slightly ten days before referendum day only to resettle in the week of the vote.’
Betfair has placed a 75% probability that the UK will vote to remain in the EU on June 23rd.
Domestic data printed comparatively positively with government borrowing slightly down in June from the same month last year, but borrowing remains higher-than-expected.
However, the UK’s ecostats have not had much of an impact with trader focus dominated by the impending referendum vote. This is likely to continue for the remainder for the week.
In fact, there is potential to see a muted impact from domestic ecostats for some time to come given that the result of the EU referendum will be the main catalyst for GBP volatility.
GBP USD Exchange Rate Forecast: Will Yellen Speech Provoke Volatility?
As Tuesday’s European session progressed, the Pound cooled from intraday highs against the US Dollar.
This was partly the result of profit taking as traders took advantage of the attractive selling opportunities arising from the marked Sterling appreciation.
A slight reduction in risk-appetite, thanks to falling commodity prices, also pushed the US Dollar higher; albeit only fractionally.
Traders will be looking ahead to the forthcoming speech on monetary policy from Federal Reserve Chairwoman Janet Yellen.
Given that Yellen delivered a dovish speech following the most recent interest rate decision, most economists predict that she will do much the same today.
With the EU referendum, China’s economic woes, uncertainty regarding the European Central Bank’s (ECB) and the Bank of Japan’s (BOJ) policy outlook and disappointing domestic data weighing on the global outlook, the Federal Reserve could hold rates for a considerable time to come.
‘The close proximity of (last week’s) policy meeting and (Tuesday’s) testimony further reduces the chances of anything unexpected or undisclosed,’ MSUSA Chief Economist Steven Ricchiuto said in a report.
GBP USD Exchange Rate Forecast to Fluctuate on EU Referendum Uncertainty
Although the British Pound has made significant gains recently amid trader confidence that the UK will vote to remain a member of the EU, there is still high potential for GBP exchange rate volatility.
Should opinion polls suggest that ‘Leave’ has taken a commanding lead again, the GBP USD exchange rate may see recent gains eroded.
With the EU referendum dominating trader focus, domestic data is unlikely to have a significant impact on the GBP USD exchange rate.
The Pound Sterling to US Dollar (GBP USD) exchange rate was trending within the range of 1.4639 to 1.4784 during Tuesday’s European session.
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