Today is the day of the EU Referendum, a hugely significant day for the UK which could change the future for both the United Kingdom and the EU. Results will be released early on June 24th and we are expecting exchange rates to be volatile today.

GBP/EUR exchange rates most at risk

The Euro is the currency second most at risk of unexpected movements following the EU Referendum as the Euro is used by 19 of the 28 members. Global leaders have been lining up to discuss the EU Referendum and with the UK’s stance directly impacting not just trade but also the political situation in the EU, the outcome of the Referendum is vital to the Euro. The Referendum will be the main driver on Euro exchange rates today, tomorrow and into next week.

Clients with any Euros to buy or sell with Sterling should be prepared for a very volatile period within which exchange rates could move sharply and unexpectedly.

The big moves will likely occur once the result is known via any of the many exit polls which are being conducted. Other economic data to move the Euro today will be the latest release of the latest Purchasing Manufacturing Index (PMI) data for the Eurozone and also individual countries data too. There is also the latest updates on the Long Term Refinancing Operation (LTRO), a series of long term loans from the ECB to banks. These indicators will all help shape the current Euro market but I do feel the EU Referendum is the main event.

How will a Remain vote impact the GBP/EUR exchange rate

If the result of the EU Referendum is a Remain vote we should see the Pound rise which should see the Euro weaken as funds are moved from the Euro into the Pound.

After GBP/USD, GBP/EUR is the heaviest traded pair for the Pound so any big shifts on the Pound will manifest on the Euro. For example, any major GBP strength as a result of the Remain vote might see the Euro weaken as investors sell off Euros to buy Pounds.

There could actually be a unique situation where we see the Euro strengthen as a result of the Remain since this would enhance the strength of the EU and this would benefit the Euro. I do believe the overall position will be Euro weakness as the Pound rises, I think a realistic rate might be up to 1.35 on GBP/EUR but spikes higher could not be ruled out. If you are looking to take advantage of such improvements registering your interest today is vital.

How will a Leave vote impact the GBP/EUR exchange rate

A Leave vote would see the Euro make large gains against Sterling as investors sold off the Pound in their droves. Most analysts are predicting a Remain vote so a Leave outcome, whilst not totally unexpected would be the shock. Some predictions of parity on GBP/EUR are not wholly unfair, I think 1.10-1.15 more realistic. Those selling Euros should be careful as there is a real risk that hanging on to catch such rates could see sharp losses if it is a Remain vote.

There is a flip-side to the Leave vote for the Euro and that is because the UK is seen as an important check and balance on the rest of the EU, so without the UK there some commentators that have suggested we could see Euro weakness as confidence in the Euro declines. The likelihood of this happening immediately is not likely in my opinion. I feel it is much more likely if this does happen it will be longer term. A Leave vote is the big risk and less likely, there are a number of unexpected twists and turns from a Leave vote which could prove very costly.

For more information on exchange rates and news throughout the day please call our trading floor on 01494 725 353 or email me directly at jmw@currencies.co.uk.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.