- Patrick Maflin
Pound Sterling (GBP)
With voting in the EU Referendum set to take place throughout the day, the Pound is likely to experience notable volatility. All eyes in the global market are on Britain as the country’s public vote on whether or not the nation will remain part of the European Union.
Sterling shot up across the board earlier in the week as bets shifted towards a ‘Remain’ result, but with many analysts suggesting that the outcome was still too close to call, the Pound fell flat on Wednesday. The Pound has largely maintained its highs as the cost of insuring the Pound from swings remained lower than last week, but it continued to slip on Thursday as investors took profit from its current highs.
Polls released as of Thursday morning continue to be mixed. While many lean towards ‘Remain’, the few that lean towards ‘Leave’ make it clear that a ‘Brexit’ is still possible. If a ‘Brexit’ occurs, the Pound will plummet across the board. If the UK ‘Remains’, the Pound will solidify its gains but may not advance much further than it already has.
US Dollar (USD)
The Pound reached 2016 highs against the US Dollar during Wednesday’s session as high risk-sentiment meant that the safer US Dollar had low appeal. Since then, GBP/USD has slipped slightly but Sterling has largely sustained its gains.
Some analysts have extreme forecasts for the Pound to Dollar exchange rate following the EU Referendum’s results, with a number predicting that its value could drop closer to 1.35 or even 1.30. Some suggest that a vote to ‘Remain’, on the other hand, would instead send GBP/USD towards 1.50 or 1.55 in the coming weeks.
The US Dollar has struggled to remain strong in the last week as the latest comments from Federal Reserve policymakers weighed on the ‘Greenback’. Risks in the global and domestic markets remain high for the Fed, with some analysts suggesting that a rate hike may not even happen in September with the US election so close. However, a British vote to ‘Remain’ could be seen as stabilising by the Fed and may encourage further rate cuts.
GBP/EUR held at levels around 1.30 despite uninspired Sterling movement throughout Wednesday trade. Investors generally avoided making large sudden movements as they readjusted their positions for today’s Referendum.
Analysts suggest that the Pound could fall to 1.20 against the Euro immediately following a ‘Leave’ vote. Some economists even warn that the Pound and Euro could reach parity by the end of 2016 in the event of a ‘Brexit’. Analysts also suggest that a vote to ‘Remain’ could see GBP/EUR reach 1.36 or 1.40 in coming weeks. However, others argue that as markets have already keyed in a ‘Remain’ victory, its gains may not be too drastic.
The Euro will likely react similarly to the Pound to the news of the Referendum when it comes to other Euro pairings. It would recover if Britain remained, maintaining stability in the EU, but could drop if a ‘Brexit’ occurs. This could worsen if Euroscepticism increases across the bloc, which some suggest could happen if a ‘Brexit’ causes a domino effect. If the Eurozone were to see multiple countries seeking an exit from the EU, the Euro would suffer considerably.
Australian Dollar (AUD)
The Pound to Australian Dollar dropped during Wednesday’s session and continued to slip on Thursday, as high risk sentiment and a hawkish report from the Reserve Bank of Australia (RBA) improved appeal towards the ‘Aussie’. GBP/AUD remained around 150 pips above the week’s opening levels, however.
As the pair is currently even more volatile than usual, with the ‘Aussie’ particularly affected by risk-sentiment, it is difficult to predict how the Referendum could affect the pair. A ‘Remain’ vote would strengthen both currencies, but the ‘Aussie’ may even overpower the Pound, meaning caution may be necessary.
New Zealand Dollar (NZD)
The volatile Pound to New Zealand Dollar exchange rate fluctuated during Wednesday’s session, but ultimately dropped as risk sentiment boosted the ‘Kiwi’ with an increasing number of investors selling the Pound just in case of a ‘Brexit’ vote.
When the results of the EU Referendum are released on Friday morning, GBP/NZD could be one of the exchange rates that fluctuate the most regardless of the result. As a result, caution is advised.
Canadian Dollar (CAD)
The Canadian Dollar failed to hold its ground against the Pound during Wednesday trade despite the latest Canadian retail sales report coming in above expectations.
Retail sales improved from a contraction of -0.8% to 0.9% in April, beating forecast figures of 0.8%. The fluctuating prices of oil, Canada’s most lucrative commodity, may have weighed on the ‘Loonie’s chances of recovering. Markets now await the result of Britain’s EU Referendum before they act further on the Canadian Dollar or the liquid commodity.
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