Referendum polling dominates the markets

6 June, 2016

Tom Arnold

Last week saw a complete turnaround in Sterling’s fortunes, with the markets reacting very forcefully to a poll released early in the week which showed that the ‘Leave’ campaign had taken a slight lead in the EU referendum polling. This was a massive turnaround on the substantial lead that the ‘In’ campaign had enjoyed just a couple of weeks before and so uncertainty came crashing down on the Pound with 3 cent drops against both the Euro and the Dollar. There was various mixed economic data out last week too, but this provided little more than a sideshow with the possibility of Brexit dominating the markets. Over the weekend further polls have shown this lead for ‘Leave’ maintained and as such these losses have been extended, with the Pound now as much as 5 cents down against the Euro.

If you have an upcoming currency requirement, the situation is fairly simple. If the UK leaves the EU then the Pound will likely drop significantly in strength as the market tries to understand what the next steps will be, how long they will take and what the future holds. If the UK stays in the EU, then it is very much as you were and the reality of the rates we have enjoyed for the last couple of weeks, will probably return. Therefore the polls are all important, and should be closely monitored to try and judge the timing of your upcoming currency purchase. If the ‘Leave’ campaign were to extend their current lead then you can expect the markets to start reacting straight away as ‘pricing in’ occurs – there is an expectation from some analysts that the drop in Sterling’s value could be as much as 20% – this would obviously make a massive difference to even a modest overseas investment, so make sure that you are in close contact with your CI account manager to be kept up to date on exactly what is happening.

In terms of economic data, this week is due to be quite a busy one:

Australian Interest Rate Decision + Statement
German Industrial Production
UK House Price Survey
European GDP

UK Manufacturing Production
UK Industrial Production
UK GDP Estimate
New Zealand Interest Rate Decision + Statement

German Trade Balance
UK Trade Balance
US Jobless Claims

German CPI Inflation

It will be interesting to see how much impact any of the above data has, given the referendum’s dominance – it may well be restricted to a bit of intra-day volatility, or will any of the releases provide any ammunition to either camp? We shall have to wait and see, but as ever, stay in close contact with your Currency Index account manager to be kept informed of what is happening and what your options are for your upcoming currency purchase.