Mark Carney reiterates his points around the potential economic impact of an exit from the EU, to avoid further volatility next week, making a currency transfer sooner rather than later may be advised.
We are now a week away from finding out the result of the Referendum, and less than a week away from entering the polling stations. As a result we have already been seeing some unusual activity on the Pound.
Sudden whole cent gains or losses within a matter of seconds on many of Sterling’s major pairings is evident of a sensitive market poised for a vote set to have a massive impact on the fate of the UK economy.
The seriousness of the upcoming vote meant that yesterday’s Bank of England interest rate decision, normally a key market mover, went largely unnoticed. There was no way a change in policy would be recorded when the BOE had no clue which direction the UK economy would be moving within the next few days, let alone months and years!
But the occasion did see Mark Carney, the Governor of the Bank of England, reiterate the downside risk of a Brexit to the UK economy, and hammered home the additional steps the BOE had taken to provide additional liquidity and protection to the UK economy.
Markets seem to have gained confidence in the Pound, his highlighting of the gravity of the situation, made it likely some may change their mind. Even his direct confrontation to Leave campaign MP Bernard Jenkin through open letters had caused a stir. Jenkin had stated that the Bank was not supposed to come out for one side or the other, whilst Carney replied matter-of-factly that it was the Bank’s prerogative to prepare the UK for any eventuality, both physically and by informing the public.
Will this result in greater support for the Remain camp? Difficult to say, but from the way the Pound performed yesterday, thanks to this and some very positive retail sales figures for the UK economy, they certainly felt reassured.
While the Pound had a slight boost yesterday, this is largely trivial compared to what Sterling holders can expect next week. When Boris joined the Leave camp this caused Pound rates to fall by near on 1.5% in a single day – and this was back in February.
With a few days before the vote, high street institutions, companies, and individual investors will have to ask the difficult question – what will happen to the value of my capital?
With the likes of HSBC and Goldman Sachs forecasting a 20% drop in the value of the Pound should we leave, unless the polls show some gains for the Remain camp, I think it more likely than not that the Pound will suffer in the run up to the vote.
Whilst the individual may be inclined to gamble on the outcome (and it is an utter gamble, the average of all polls is showing a 50:50 split), the companies holding millions, with shareholders to answer to, will feel higher pressure to move funds into traditional safe havens – such as the Swiss Franc and Dollar. Any mass sell-off of Pounds will see its value fall, as the demand simply isn’t there.
I strongly recommend that anyone with an upcoming foreign currency requirement should detail this to their account manager. We may be subjected to very sudden movements next week, and it is important to be in-tune with what expectations are showing, otherwise waiting could become an expensive strategy.
Therefore, call our trading floor on 01494 725 353 today or email me at firstname.lastname@example.org to discuss your options ahead of next week.
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