The Pound to Euro exchange rate surged at the end of last week’s session as ‘Brexit’ sentiment softened ahead of Thursday’s EU referendum.
GBP/EUR Hits 2-Month Lows
Sterling suffered a series of two-month lows at the start of last week’s session in response to a slew of opinion polls giving the ‘Leave’ campaign a sizable lead over the ‘Remain’ camp. Betting firm Betfair raised its odds to suggest a 36% chance of ‘Brexit’ on Monday, up from just 22% before the weekend.
GBP/EUR hit another two-month low on Tuesday as opinion polls continued to put the ‘Leave’ campaign ahead of ‘Remain’ and British consumer price index data printed below market expectations at 0.3% for May.
On Wednesday UK labour data showed that a 55,000 surge in job creation took the headline unemployment rate down from 5.1% to an eight-year low of 5.0%. The upbeat figures gave the Pound a little bit of a boost, however, Sterling was far more sensitive to shifts in EU sentiment than to any data prints last week.
Shift in EU Sentiment
The Pound began to rally on Thursday as ‘Brexit’ sentiment appeared to wane. UK retail sales printed impressively at 0.9% but Sterling’s rally appeared to coincide with the tragic murder of Labour MP Jo Cox. Referendum campaigning paused for three days following the brutal attack and in this time sentiment started to shift back in favour of maintaining the status quo. It is also possible that undecided voters wanted to distance themselves from the act of violence, which was committed by a man with reported links to extreme right-wing nationalism.
GBP/EUR rose from just above 1.25 on Thursday morning to just under 1.27 on Thursday night. And the Pound continued to rally over the weekend, reaching a two-week high of 1.29 at the start of this week’s session.
Countdown to the Vote
There are a couple of semi-important European ecostats on the calendar this week but they will struggle to exert any influence whatsoever on the Pound to Euro exchange rate this close to referendum day.
Despite the recent shift in sentiment back towards ‘Remain’ and rallies in favour of Sterling, GBP/EUR could easily find itself in free-fall if public opinion moves back in favour of leaving the European Union.
Tuesday’s BBC TV debate between George Osborne (Remain) and Boris Johnson (Leave) and Wednesday’s Channel 4 TV debate could prove pivotal ahead of Thursday’s vote and Friday morning’s final result.
Extreme volatility is expected in the run-up to the referendum results and large moves are predicted following the announcement. If ‘Remain’ wins GBP/EUR could rally towards 1.36. If ‘Leave’ comes out on top we could see the Pound to Euro rate slide towards 1.20.