EDITOR’S NOTE: In the absence of big news Sterling tracked sideways last week, ending the week marginally up, helped by pro-EU declarations from heavyweights putting the EU referendum leave campaign on the back foot. Foreign currency exchange specialist Luke Trevail explains.
“The markets remain subdued this week, as we enter the last 5 weeks of campaigning for both sides of the EU Referendum. Despite the lack of volatility, news is far from sparse as some financial heavyweights enter the ring, giving their opinion on what would happen in the event of a Brexit.
Christine Lagarde, chief of the IMF stated that the consequences of the UK leaving Europe would be “pretty bad, to very, very bad”. She went on to echo comments made yesterday by Mark Carney, Governor of the Bank of England and warned that a Brexit could “lead to a technical recession”.
Carney gave perhaps the most candid warning about what he saw as the risks if we voted to leave on 23rd June, calling it the Bank’s duty to make its judgements known. He added, “a vote to leave the EU could have material economic effects”. David Cameron and Chancellor George Osborne have both got behind the Bank and stated that it’s an unequivocal warning that sends a very clear message to the voter.
The momentum for out campaign does now seem to have stuttered following these warnings, perhaps leading to the end in Sterling’s decline these past few days.
Sterling is quick to react negatively in the case of bad news but bide its time in the event of good. This treading water pattern on the GBPEUR market may well continue until we actually know what is going to happen closer to the referendum, but of course what we have seen in the recent past is that at any time, volatility is never far away and rates could move erratically at any time.
Keep your eyes open and reactive to the market because if you need to make a move and enter this market it can reward and punish in equal measure very quickly indeed”.