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The GBP and the Upcoming Brexit

GBP and Brexit
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May 18, 2016 By: , No Comments

How Bad is a Brexit for the GBP?

Every time mention is made of a Brexit, currency traders, analysts and forecasters get nervous. The fact of the matter is that Britain is one of the most important countries in the European Union in terms of its buying power, political leverage, economic strength et al. The UK is front and centre in global affairs and remains the chief ally of the United States in Europe. President Obama himself has cautioned that a Brexit would give tremendous power to the enemies of the free world including North Korea, Russia, Isis and other terrorist entities. A breakup of a power bloc that it effectively NATO friendly would not be good for America and therefore the rest of the free world. Britain sees things differently, and does not consider its decision to remain or break from the European Union as central to its alliance with the Western world. However, tremendous pressure has been brought to bear on the GBP of late, and it has weakened substantially against a basket of currencies including the USD.

Widening Margin in Telegraph ORB Poll Reason to Celebrate?

Countless polls have been conducted, and the vast majority of them seem to suggest that a Brexit is an unlikely outcome, although it all depends on voter turnout on the day. The percentages in favour of a Brexit are less than 50%, but the margin remains so tight that certainty is elusive. Recently, a Brexit poll was conducted by the Telegraph. The poll indicates that the vast majority of Britons favour remaining in the European Union. This number has now extended to 15 points according to the Telegraph ORB poll. The leave vote is now losing favour in the run-up to the Brexit on June 23. The former mayor of the city of London, Boris Johnson had made repeated references to the policies in the European Union being similar to those of Nazi Germany. He believes EU policies are totalitarian, seeking to control the economies, policies and movements of people under the umbrella of EU policy and doctrine.

After the poll was conducted, the currency pair – the GBP/USD pair – rallied to 1.4491 from 1.4395. The other pair – the EUR/GBP pair – declined to 0.7815 from 0.7860. This indicates that in Europe at least, there is bearish sentiment about the GBP. While the sterling buys more dollars today, it is still viewed with caution in the European Union. The divergence between the yes vote and the no vote is helping to grow confidence in the British currency, but until this becomes a widespread phenomenon that is clearly evident, anxiety will remain. Across the Atlantic, currency traders will utilize this opportunity to take out short positions on the GBP/USD currency pair, in the lead up to the referendum in five weeks’ time. With the consumer price index at 0.5% year on year, it is unlikely that the Bank of England will continue with its policy of dovish expectations and will possibly move to hike rates sooner rather than later.

Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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