Pound jitters continue

The Pound continued its recent volatile behaviour yesterday, falling in morning trading before recovering and then falling again in the afternoon. Another ‘volatility index’ was published showing investors’ uncertainty at its highest level since 2008, as according to bookmakers the probability of a Brexit has now risen to 32.5%, up from 20% only just over a week ago.

Sterling hit a new 8-week low against the US Dollar, and was down 0.6% against the Euro and 1% against the Japanese Yen, at the end of European trading.

Of course, a weaker Pound is good news for British exporters, so not necessarily undesirable for the economy overall; but that does not help those of you sending money abroad to buy an overseas property or import goods for your business. Higher import prices, on the other hand, would boost inflation, which would help the Bank of England get nearer their 2% inflation target – and this morning at 9.30 we have May’s key UK inflation figures released. This announcement could move the Pound more than other recent economic data, which has largely been playing second fiddle to the referendum in terms of influencing exchange rates. Anything below the expected 0.3% figure for CPI inflation in the 12 months to May would be very likely to send the Pound lower.

Markets start to see Brexit as real possibility
The BBC reported yesterday that hedge funds are starting to take short GBP positions – effectively betting that sterling will now weaken further. And with the FTSE falling over 1% yesterday, it is clear that with 9 days until polling day, financial markets are starting to accept that the risk, in statistical terms, of a Leave vote on June 23rd is significant. Joe Rundle of ETX Capital, said “Polls show it’s now too close to call and markets are responding with some very twitchy activity. Sterling has shed more than 2% in two sessions to retrace its April lows.”

Other data today
The only other major data due today are US retail sales, at 1.30pm UK time, and Eurozone industrial production, at 10am. The former may well have an impact on US Dollar prices, but expect all the main movement against the Pound to be dominated by the referendum until – and beyond – June 23rd.