GBP/EUR – Holds Position of Strength ahead of the EU Referendum Vote
With the EU referendum vote concluding tomorrow evening, trader confidence that the UK will vote to remain in the European Union has sent the British Pound rallying versus its major peers. The GBP EUR exchange rate is trading in the region of 1.30; close to a five-month high. Trader confidence has increased in reaction to bookie’s odds shifting overwhelmingly in favour of a ‘Remain’ victory. However, opinion polls have presented a different view, with many still giving the ‘Leave’ campaign the lead. Given that the Pound has strengthened considerably of late, a vote to remain is unlikely to cause significant further appreciation. However, a vote to Brexit is likely to result in huge Sterling depreciation, with many analysts predicting a larger decline than the 15% drop recorded in 1992.
GBP/USD – Rallies on Safe-Haven Demand
The ever-growing confidence that the UK will vote to remain in the European Union has seen risk-on trade dominate market movement. As a result, reduced demand for safe-haven assets is weighing heavily on US Dollar exchange rates. Also adding to USD depreciation is mounting pessimism regarding the timing of the next Federal Reserve interest rate hike. After delivering several dovish speeches, Fed Chairwoman Janet Yellen is looking increasingly unlikely to consider tighter policy for some time to come. Whilst Brexit uncertainty will diminish tomorrow, Yellen continues to highlight weak global economic conditions as a reason to delay policy changes.
USD/GBP – EU Referendum Outcome in Focus
The outcome of the UK’s EU referendum will be highly significant for the USD GBP exchange rate. Having declined over the past few days in response to improved risk-appetite, a vote for Brexit would see the US Dollar reverse losses sharply as traders flock to safe-haven assets.
EUR/USD – Climbs as Bond Prices Fall
The Euro has recovered losses over the past few days as improved risk-appetite eased bond prices. With the European Central Bank (ECB) managing a massive asset purchasing programme, reduced yields weighed heavily on the Euro. The ECB’s choice of assets remains limited, however, and a Brexit vote would likely see traders pour into safe-haven bonds again. This, combined with the likely US Dollar uptrend, could cause the Euro to decline heavily.