As markets opened yesterday, the Pound slid dramatically against the Euro as the fallout from Friday’s opinion poll showing a 10 point lead for the ‘Leave’ campaign was felt.
The Guardian sponsored ICM opinion poll released yesterday indicated a 53%-47% ‘Leave’ to ‘Remain’ result after adjusting for undecideds. Unless further polls or events garner some support for the ‘Remain’ campaign, it’s probable the Pound will continue its slide.
Falling from yesterday’s height of 1.2680 to a low of 1.2531 the Pound shot up against the Euro in the late afternoon as apparent profit taking saw the Pound to Euro exchange rate hit 1.2661 before falling again and continuing that trend today.
Currently the Sterling to Euro (GBP/EUR) exchange rate sits at an uninspiring 1.2589.
GBP Monthly Volatility Reaches Unprecedented 28%
Implied volatility for the Pound has soared as investors seek to secure forward contracts to insulate from further Sterling depreciation. One-month volatility hit a never-before-reported level of 28% earlier in the week amidst a slew of polls indicating a ‘Brexit’ lead. Previous conflicting poll data has not done much to quash uncertainty just less than ten days before the vote, only serving to reinforce bearish actions.
UK inflation figures were released this morning to a lukewarm reception. Inflation remained positive but failed to hit forecast figures, typically this would have more of a negative impact on the British currency, however, the Pound is in such dire straits that the fact the numbers stayed positive was enough to afford the currency a tiny boost.
Sterling did spike somewhat yesterday as traders indulged in some profit taking, but any gains were short lived.
While the latest polls point to a ‘Brexit’, UK newspaper The Sun has also pledged its support for the ‘Leave’ campaign, stating:
‘Outside the EU we can become richer, safer and free at long last to forge our own destiny — as America, Canada, Australia, New Zealand and many other great democracies already do…’
The Sun continued:
‘If we stay, Britain will be engulfed in a few short years by this relentlessly expanding German-dominated federal state.’
With its readership of 1.7 million, the Murdoch-owned paper could hold much sway over its supporters, possibly increasing the rising anti-EU sentiment within the UK that the likes of pub chain Wetherspoon’s are trying to ignite.
Euro (EUR) Hurt by European Stock Slide as Polls Hit Hard
Risk aversion and distaste towards the US Dollar due to zero likelihood of a Fed rate hike afforded the single currency a healthy bump yesterday before the currency fell sharply against the US Dollar.
Across the board, European indexes are seeing notable declines due to the ever increasing climate of uncertainty and doubt surrounding the UK’s EU referendum.
Additionally, a speech from European Central Bank policy maker and head of Bundesbank Jens Wiedmann stirred hawkish sentiment as he called to the ECB to halt further policy action to see the effect of existing measures.
GBP/EUR Forecast: Eyes on BoE to Stem ‘Brexit’ Worries
With the UK’s inflation report and the Eurozone’s industrial production figures published, investors with an interest in the GBP/EUR exchange rate will now be looking ahead to tomorrow’s releases.
Average weekly earnings and change in employment reports within the UK are set to be published on Wednesday. Weekly earnings are expected to decrease slightly year-on-year, falling to 1.7% from 2.0%, while change in employment is set to increase marginally.
Unless the results greatly exceed expectations, the data may fail to spur any movement for the Pound. However, later in the week UK retail sales data comes to bare, with a forecast drop of -0.6%. If the data prints at that figure or lower it may add to the pressure already on the Pound.
The Bank of England (BoE) interest rate decision is also due to take place later this week. Analyst are confident the rates will see no change but all eyes will be on the rhetoric of BoE officials, looking for a leaning towards dovish or hawkishness. The only notable European data reports are Eurozone inflation figures and an economic bulletin from the European Central Bank. Inflation is forecast to rise by 0.3% in May on a year-on-year basis, which may indicate a strengthening of Eurozone economy.
Similarly to the BoE’s announcement, analysts will be scouring the ECB’s economic bulletin for any hints in stance regarding the upcoming EU referendum.
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