Sterling
The Pound surged across the board yesterday as British sentiment continued to swell in favour of remaining in the European Union.
There are a few reasons for this last-minute shift: 1) Historical records show that undecided voters often revert to the status quo on the cusp of important votes. 2) ‘Brexit’ campaigning was recently suspended for three days, just as support for the ‘Leave’ camp was gaining momentum, following the murder of a Labour MP. 3) Jo Cox’s murderer was seen to espouse extreme far-right nationalist views, which some voters may wish to distance themselves from by voting ‘Remain’.
Sterling is currently sitting at very attractive levels compared to last week but we are still likely to see further volatility over the next few days as investors look to make sense of the last round of campaigning and TV debates.
Euro
The Pound to Euro exchange rate rallied by over 250 pips yesterday to strike its highest level since the start of June.
The massive daily rise in GBP/EUR followed a raft of business leaders and economists speaking out in favour of maintaining Britain’s EU membership. Carmakers Jaguar, Land Rover, Toyota, BMW and Vauxhall all released statements urging Britons to vote ‘Remain’, as did Richard Scudamore, Head of the Premier League. This followed warnings from a group of 10 Nobel Prize winning economists who predicted that ‘Brexit’ could create major uncertainty and seriously weaken the global economy.
US Dollar
‘Cable’ appreciated by over 300 pips yesterday to reach its highest level since the end of May.
Sterling’s huge gains reflect a shift in sentiment back towards remaining in the EU. Recent polls have started to put the ‘Remain’ camp back in the lead and bookmakers Betfair raised its implied probability of a vote to stay in the EU to 77%, up from 60% on Friday.
GBP/USD is now over six cents stronger than it was on Thursday afternoon when the Pound hit a two-month low. Yesterday’s 2% daily gain for Sterling against the US Dollar was the largest one-day gain since the financial crisis of 2008. If sentiment continues to support a vote to maintain the status quo then GBP/USD could tick higher but it is entirely possible that jitters could kick in again and drive the Pound lower ahead of the vote.
Canadian Dollar
Sterling leapt higher by around three cents against the Canadian Dollar yesterday as investors cut back on ‘Brexit’ bets and the cost to insure against Sterling volatility lessened.
Ironically, the dampening of ‘Brexit’ bets drove global oil prices higher, as global sentiment improved, which would usually provide the commodity-sensitive ‘Loonie’ with a little bit of a boost. However, that was not the case yesterday, with ‘black gold’ remaining overshadowed by the UK referendum.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around three cents to hit a fortnightly high during yesterday’s session as positive EU sentiment appeared to spread in Britain.
GBP/AUD is now seven cents stronger than it was a week ago but eight cents weaker than it was around a month ago. These huge swings in a relatively short space of time suggest that further volatility can be expected over the next few days.
New Zealand Dollar
Sterling ticked higher by around two cents against the New Zealand Dollar yesterday as ‘Brexit’ sentiment appeared to wane at the start of the week. It’s only a week since GBP/NZD was trading at yearly lows so, again, there is potential for more large moves as the day of the vote gets ever closer.
Data Released
10:00 EUR German ZEW Survey (Economic Sentiment) (JUN) High 4.8
14:00 EUR ECB President Mario Draghi Speaks in Brussels Medium
15:00 USD Yellen Testifies on Monetary Policy to Senate Banking Panel Medium
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