Referendum on EU Membership announced

Yesterday saw the much anticipated speech from David Cameron with him pledging an in/out referendum on EU membership should the Conservative party win the next election. Cameron hopes to renegotiate the terms of UK participation in the EU and then give the people a simple choice of whether to stay in the EU under those terms or to leave. Albeit many may welcome this news it provides mixed opinions over how the outcome will affect the UK economy and indeed the strength of the pound against the single currency. Laurent Fabuis, the French foreign minister immediately jumped following the speech and announced that France would “roll out the red carpet” for any businesses who felt the UK no longer suitable.

Indeed Cameron himself warned in his speech, continued access to the single market is key to British businesses and jobs and has made it clear he personally wants to remain a member. Strangely, and despite this important news the pound saw little movement yesterday against the euro – perhaps highlighting the notion that the markets often move upon rumour, and that with the delay of the speech much of its content was leaked. Indeed elsewhere the pound remained stable against its major pairings – most notably the US dollar which like the euro seems relatively stagnant, at least in the short term. However this is very unlikely to remain the case as the Federal Reserve meet next week to discuss monetary policy and their ongoing bond buying scheme. An issue that is ongoing since December it is thought that Ben Bernanke – Fed reserve Chairman – will extend the easing scheme and thus in the short term avoid any further economic downturn and the ominous fiscal cliff.

Regardless of the outcome this meeting will no doubt have a large effect on currency markets as US economic issues have been a driving force in much of the recent swings.

Today sees little in the way of any major market releases so it is unlikely we will see any major swings for the pound, as all eyes focus towards UK quarterly and yearly GDP announcements tomorrow. With analysts predicting a largely bearish (negative) result for the quarter – from 0.9% to -0.1% but a bearish (positive) result for the year – 0.0% to 0.2% the result of these reports will no doubt have an interesting result on all sterling pairings, but in particular against the euro.

If you have any upcoming currency transfers make sure you speak to your Currency Index broker to make sure you stay ahead of the markets.