Vulnerable Sterling just holds a level

10 June, 2016

Tom Arnold

This week has been a relatively stable one for the Pound, following a massive drop off in strength last week as a result of the Leave campaign swinging the polls back from the 18 point lead Remain had been enjoying, to a neck and neck tie. The polls are all important for Sterling over the next couple of weeks and with this week’s polls showing only a 1-2% lead either way, the Pound has been very range bound. That’s not to say it has been static, with volatility at its highest since the financial crisis of 2008 – it has just been bouncing around with a fairly tight range of 1 cent.

Unfortunately this stability is likely to be short lived with less than two weeks remaining until we see the referendum itself. The Pound is on a knife edge and is incredibly vulnerable to any significant movement in the polls, with the biggest problem being a lack of visibility on when the major polls are released – we know they will come every few days – but we have seen a few occasions already where the release of a poll with a significant change in the vote, has caught the market completely by surprise, and when this happens the movement that occurs as a result is even more pronounced.

The markets are obviously absorbing more data than just the polls from the referendum, but it is interesting to note that even a massive swing in UK manufacturing and industrial production numbers earlier this week only caused one mornings worth of blip, and likewise a speech from Mario Draghi yesterday morning, caused some movement, but was soon lost to the background noise of the referendum.

The major data for today has already been released in the form of German CPI inflation, which came in exactly on expectation – this caused a shift in the Euros favour of just over half a cent. There is little in the way of critical data due out for the rest of the day, with a UK consumer inflation expectations survey due from the Bank of England this morning the only other data of note due out. As a result we will probably see the news wires spend much of the day digesting the live TV debate on the referendum which aired last night, with the main news story being accusations aimed towards Boris Johnson with regard to his future job ambitions – is his desire to be the next PM the main motivation for his referendum stance?

With personal attacks and petty political ambitions coming to the fore it is sure to be a hectic couple of weeks as we head towards polling day, so it is well worth considering removing the currency variable from your overseas property purchase equation – a forward contract can lock the rate in for up to two years ahead, thus giving you an exact figure for your purchase in advance, and removing fears that a potential Brexit will destroy the Pound’s strength. It is also worth noting that there hasn’t been a major poll now for almost four days – tick, tock, tick, tock…