‘Cable’ is over four cents stronger now than it was at the beginning of last week’s session thanks to a swing in sentiment towards remaining in the European Union.
‘Brexit’ Bets Hurt Sterling Last Week
At the start of last week the Pound to US Dollar exchange rate was lurking below the 1.42 mark thanks to a series of new opinion polls giving the ‘Leave’ camp the lead over the ‘Remain’ campaign.
On top of that UK inflation underwhelmed at 0.3%, compared to calls for 0.4%, and investors began to hedge against the possibility of a hawkish policy announcement from the Federal Reserve. This sent GBP/USD to a two-month low on Tuesday.
However, Sterling rallied by around a cent on Wednesday as Fed policymakers left interest rates on hold at 0.25%-0.50% and downgraded the central bank’s outlook for future rate hikes. Fed Chairwoman Janet Yellen said that monetary tightening would be less aggressive than previously suggested and hinted that there might only be one rate rise in 2016.
GBP/USD Rebounds
‘Cable’ tumbled to a new two-month low just above 1.40 on Thursday afternoon but the Pound started to appreciate later in the day as ‘Brexit’ campaigning was halted following the tragic murder of Labour MP Jo Cox.
Opinion polls showed a shift back in favour of remaining in the EU on Friday and the Pound continued to strengthen over the weekend. It seems that some voters who had previously been sitting on the fence were looking to distance themselves from the brutal attack on Ms Cox, which appears to have been influenced by extreme far-right nationalist views. GBP/USD is now trading six cents higher than its low point last Thursday.
Referendum Day Approaches
The Pound to US Dollar exchange rate is unlikely to respond to any of the data points on the economic calendar this week because traders will be focussing on Thursday’s referendum and any swings in sentiment approaching the day of the vote.
This means TV debates on Tuesday and Wednesday could lead to large fluctuations in GBP/USD if either side is seen to land the larger blows.
Huge volatility is expected over the next few days. In the event of ‘Brexit’ we could see GBP/USD start sliding towards 1.35. In the event of a vote to remain we could see Sterling rally towards 1.55.