Quiet day ahead leaves the Pound vulnerable to EU referendum trend

24 February, 2016

Tom Arnold

Today sees a very quiet day on the markets with the only UK data due for release being mortgage approvals numbers this morning. In Europe there is likewise an almost complete absence of data, with only the US due to release anything of note in the form of services PMI, new home sales and a couple of Federal reserve members speeches.

As a result of this absence of critical data we can expect the market to stay on trend, which is very much against the Pound at the moment. Our regular readers will know this is in large part thanks to a number of high profile Conservative MPs coming out in open rebellion against the Prime Minister on the subject of Brexit. Boris Johnson, Michael Gove and a significant portion of the back benches of the Conservative party are keen on leaving the EU, whereas the Prime Minister has put all of his eggs in the “staying in” basket.

This is obviously not ideal and as such the political uncertainty as well as the overall uncertainty of the UK’s continued EU membership is weighing heavily on the Pound – GBPUSD has broken all manner of supports and is currently plumbing the lowest levels for 7 years and GBPEUR is the lowest since 2014. However despite these negatives it is critical to realise this could be only the beginning – there is four months of this uncertainty to come ahead of the referendum, with things likely to get nastier as well, and many of the key political figure still to completely position themselves. Many political analysts believe Boris Johnson’s move is as much about his own political aspirations as about his feelings on Europe, and as such we really do need to start considering what the fallout could be post a referendum – if David Cameron looses does he have any credibility left as the leader of the Conservatives and ultimately the country? Could this whole situation lead to a snap general election?

What is almost guaranteed is that anyone thinking “I’ll just wait for it to go back up” could be waiting a very long time, and as such these current levels, as unpalatable as they are, could well be the very best we see for many months to come. Remember you can lock your rate in, even if you do not need the currency for some time, using a forward contract and as ever your Currency Index account manager will be happy to explain all the ins and outs.