- UPDATE – GBP USD returns to pre-referendum high as banks reject liquidity funds
- UPDATE – Survation referendum poll shows dead heat
- ‘Remain’ camp pulls back into the lead, Significant GBP EUR, GBP USD Exchange Rate Gains Recorded – Polls show either ‘Remain’ lead or tied support
- Risk appetite weakens safe-haven – Markets confident as ‘Brexit’ odds dwindle again
- EUR, USD mixed on economic warnings – Bundesbank and Moody’s offer warnings
- Data likely superfluous during referendum week – Market sentiment forecast to dictate currency movement
The referendum debate was back in full swing on Monday after several days on hold as a show of respect for MP Jo Cox, who was murdered on Thursday. GBP EUR and GBP USD exchange rates soared after the latest polls placed the ‘Remain’ campaign back in the lead. However, a later Survation poll, which forced undecideds to pick a side, put the two camps neck and neck.
The Pound jumped by over 1% against the Euro and rallied by as much as 2% against the US Dollar.
Similar gains were recorded against peers like the Australian Dollar, New Zealand Dollar and Canadian Dollar.
Pound Advances as Banks Reject BoE Liquidity Auction
The Bank of England’s (BoE) Index Long-Term Repo (ILTR) auction today has seen the smallest uptake since the beginning of 2015, suggesting city banks are confident that a ‘Brexit’ vote is unlikely and that they have sufficient liquid assets to cope with the volatility. Only £370 million was accepted during the auction, in which the BoE offered to buy illiquid assets on a six-month basis to provide liquid cash to the banks. This caused GBP USD to hit a five-month high, returning to a pre-referendum level of 1.4781.
GBP EUR, GBP USD Exchange Rate News: Pound Tears Ahead on Surging Market Confidence of Referendum ‘In’ Vote
Just a few days after the Pound collapsed on referendum poll results showing, on average, a 7% lead for the ‘Out’ campaign, ‘In’ was back on top. A mixture of polls showed that the two campaigns were either tied, or the ‘Remain’ side had edged ahead, with widespread belief that undecided voters will vote in favour of the status quo helping improve sentiment. The implied odds of a UK vote to stay a part of the EU according to the betting markets rose to around 87%.
As Eurasia Group’s Mujtaba Rahman explained:
‘The British public is risk-averse and, absent a well-articulated plan for EU exit, is still more likely to opt for the status quo than a leap into the unknown. Historical analysis of six previous referenda in the UK (most prominently on the Alternative Voting system, devolution and Scottish independence) since 1975 show a tendency for a hefty swing towards the status quo in the run-up to polling day – a trend we are beginning to see from this weekend’s polling.’
As well as speculation that support for the ‘Remain’ campaign had seen an increase in support following the tragic death of Labour MP Jo Cox, several new developments undermined Vote Leave’s campaign. Arguments over the latest UKIP anti-immigration poster soured the argument, with many accusing the use of an image of refugees as being similar to samples of Nazi propaganda.
Baroness Warsi announced she could no longer support the ‘Leave’ campaign due to the ‘environment of hate’, claiming instead that she would now be voting to remain in the European Union. Speaking of the UKIP poster, she commented, ‘the vision we needed to present was ‘hello worlders’, an optimistic vision … But unfortunately day after say what we are seeing are lies and xenophobia.’
Further damaging Vote Leave’s cause, and further supporting GBP EUR, GBP USD exchange rate trading, was the news that Nissan had become the latest company planning to take action against the pro-‘Brexit’ campaign for using its intellectual property in its leaflets. The Nissan logo is featured among others on one leaflet accompanied by the slogan ‘Major employers … have all said they’ll stay in the UK whatever the result of the referendum.’ In a statement, Nissan have said that ‘use of the Nissan name and logo by the Vote Leave campaign in their materials grossly misrepresents our widely circulated and publicly stated position announced on 23rd February 2016.’ The company had previously said that the UK remaining a part of the EU ‘makes the most sense for jobs, trade and costs.’ Toyota and Unilever, whose logos are also featured on the same page in the leaflet, have both also either registered complaints or suggested they could launch legal challenges.
Betting companies William Hill and Ladbrokes have now cut their odds of a ‘Remain’ vote on Thursday, with the former now offering 1/4 on a ‘Remain’ outcome compared to 1/3 on a ‘Leave’ result.
Euro (EUR) Advances as ‘Brexit’ Fears Ease but Risk Appetite Mutes Gains
With many analysts now agreeing that the impact of a ‘Brexit’ would be worse for the European Union than the UK, yesterday’s polls putting ‘Remain’ back in front caused relief among investors. Bond yields rose as the Euro recovered against its safe-haven peers, advancing 0.4% against the US Dollar (USD) and 0.6% against the Japanese Yen (JPY). With risk-appetite firmly on, however, the Euro was left sliding against the commodity currencies, as well as crashing -1.8% against the Pound.
Meanwhile, Bundesbank indicated that the German economy could face a slowdown in the second quarter of 2016.
Risk Appetite sees US Dollar (USD) Slump, Moody’s Issues Warning on Trump Economics
The US Dollar was firmly in negative territory against the majority of its peers yesterday thanks to demand for higher-yielding assets than the safe-haven ‘Greenback’. The US Dollar dropped -0.3% against the Euro, -0.7% against the New Zealand Dollar (NZD) and Australian Dollar (AUD) and -2.1% against Pound Sterling (GBP).
Furthering weakening demand for the US Dollar was a report from Moody’s which analysed Presidential candidate Donald Trump’s economic policies. According to the report’s authors, Trump’s policies would cause a severe shock to the US economy, creating a prolonged recession and causing the labour market to contract to the tune of -3.5 million jobs.
‘There is a gulf between what [Trump] says he wants on taxes and spending and what it will take to make the budget arithmetic work,’ explains Mark Zandi, lead author on the report.
The majority of movement in GBP EUR, GBP USD exchange rate trading was triggered by the latest EU referendum related news.
GBP EUR, GBP USD Exchange Rate Forecast: Brexit to Dominate Trader Focus
There are key economic releases due today from the UK, the Eurozone and the US. However, the developments in the UK’s referendum are likely to continue to draw focus. UK public borrowing, German ZEW surveys and a speech from Janet Yellen could all be overlooked if anything particularly dramatic happens during today’s campaigning.
GBP, EUR, USD Conversion Rates
Towards the end of yesterday’s European session, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.2994, while the Pound US Dollar (GBP USD) exchange rate traded around 1.4692.
