This currency market report discusses how a Remain or Leave vote in today's EU Referendum in the UK will impact the US Dollar over the coming days and weeks.

GBP/USD hits 1 month high on Remain hopes

Sterling continues to remain buoyant against a slightly weaker US dollar with the best rates to buy dollars in a month currently on offer. Sterling is benefiting from fresh polls lending support to a Remain vote with bookmaker odds now stating a Remain vote in the UK’s EU Referendum is a 70% likelihood.

The US Dollar is also weaker as Janet Yellen, chair-lady of the Federal Reserve Bank states any decision to hike interest rates this year are on hold whilst global conditions are assessed. A key part of the assessment is the outcome of the UKs EU Referendum, the answer to which will be known very soon triggering new direction on this exchange pair.

How will the GBP/USD exchange rate react to the EU Referendum?

A Remain vote will see GBP/USD rates rise and a move above 1.50 seems highly likely. Sterling will be bought and with some predictions of up to 5% gains on the Pound we could be testing 1.60. There is a caveat here too though, as the Fed are linking the raising of interest rates to the outcome of the Referendum. This could mean we could see the Dollar also finding favour as it makes it increasingly likely the Fed will see global conditions sufficient to warrant an interest hike.

On a Leave vote the Pound will likely drop, perhaps by 10% which would see GBP/USD rates down in the 1.30’s. The twist above also comes into play here however since a Leave vote will make the US less likely to raise rates and could see further USD weakness. And with a Leave vote there is a further twist too since the UK leaving could unsettle global markets leading to the US Dollar strengthening as it is a safe haven currency, which is bought in times of global uncertainty.

Looking further ahead there are also other factors at play on the US Dollar and that is the US Election! Has the US election really begun to be factored into exchange rates? I think not and I think once it does the USD will suffer right up until the US Election in November of this year.

From the above you can see there are numerous outcomes but I think the general position will be GBP/USD rising towards and over 1.50 finding resistance behind 1.60. This assumes a Remain vote in the EU Referendum which is apparently the most likely outcome. If you have US Dollars to convert to Pounds you could be at risk of missing out on what are still excellent historical levels, I would suggest locking in something ahead of this event to avoid the uncertainty.

Thank you for reading my US Dollar rate forecast, if you have any questions about USD exchange rates or the impact of EU Referendum or a Brexit I would be happy to discuss them – you can contact me directly with any queries 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.