Earlier this week a poll conducted by ICM on behalf of the Guardian showed a shock swing in favour of the Leave camp. The telephone poll showed the leave camp leading the way with 45% and the remain camp at 42% with the remainder undecided. The online poll which was running concurrently had the Leave camp also in front at 47% with the remain camp at 44%. The ICM polls seem to be considered the most credible at present as it has changed market sentiment. When the poll results were coupled with poor manufacturing data we saw GBP/EUR fall in to the 1.28s.
Yesterday saw the release of UK Purchase Managers Index (PMI) Construction data. Construction PMI shows business conditions in the UK construction sector. It came in at 51.2 down from 52, anything above 50 shows growth. We saw Sterling drop in value against the majority of major currency pairings after the release.
The Head of the Bank of England (BOE) Mark Carney spoke yesterday and it seems he was more concerned with the release of the new five pound note than by causing controversy again by speaking of the economic ramifications of a “Brexit”.
Sterling did rally against the Euro later in the day which could be attributed to Draghi’s comments on Eurozone inflation issues.
Today we will see the release of UK Services PMI at 09.30 and despite the majority of economists predicting a rise I am going to go against the grain and say there will be contraction. I think due to the uncertainty created by a potential “Brexit” business is stalling.
If you have a currency requirement involving selling Sterling the referendum will have a major impact on your trade. If we use GBP/EUR as an example, weighing up risk vs reward is key. If the UK remain in the EU I would expect to see GBP/EUR up to around 1.38 and if we leave to fall to around 1.15. HSBC are predicting parity, although I feel this is scare mongering for their own agenda. Taking these factors into account it may be wise to get your trade done pre-referendum or what many of our clients are opting for, hedging their trades.
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