The UK electorate taketh away, Chair of the FED Yellen giveth back.
What am I talking about you must be asking yourself. Well, the Guardian newspaper picked up on what ParityFX wrote FIRST yesterday that GBP volatility “reached extremes not seen since the financial crisis as City traders reacted to polls suggesting voters were increasingly likely to send Britain out of the EU this month”. As polls indicated over the weekend, the LEAVE camp has jumped into the lead sending the GBPUSD down from 1.46 (Friday post NFP numbers) to 1.4351 (Monday). Then some respite in the form of comments from Chair of the FED Yellen who hinted that poor NFP (jobs) data meant the FED was unlikely to raise rates this month. Yellen further comments (as we wrote in our comment yesterday) that poor data and growth prospects in China as well as a threat that the UK leaves the EU has sent ripples through the financial markets and scampered the FED’s plans to hike US rates 3 times in 2016. “One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the EU could have significant economic repercussions,” she said.
Cast your mind back a few days, I further noted that while polls showed LEAVE > REMAIN, one has to take these so-called polls with a pinch of salt. The Guardian newspaper further reports that Kallum Pickering, an economist at Berenberg Bank, said there was a good reason the pound had not crashed yet. He said his monitoring of polls showed that while support for REMAIN had slumped to its lowest level all year, “analysis of the underlying poll trends does not point conclusively to a significantly higher Brexit risk”. Thank you Kallum for reinforcing my point. HSBC has told their clients that the GBP will fall 20% in the event of a NO vote to LEAVE the EU. There is consistency in the City that the GBP will be wiped clean in the event the LEAVE camp win. If you do vote LEAVE, check your bank balance and start crying because your disposable income will drop 20%. The major corporates have already sent out a warning that they will hike their prices by at least 20% in the event of a LEAVE win. Simply put, prices will rocket, holidays anywhere outside the UK will rise 20% and suddenly that tick against the LEAVE box will not appear such a good idea in hindsight.
Yes I am sure you are pulling your hair out and disagreeing with me but I am afraid to say what I write above is fact and not my opinion. It will happen pure and simple. I know there is a fear of immigration and that fear is real and understandable. But leaving the EU IS NOT THE ANSWER!! There are ways in which the sitting government can deal with immigration. Even if the UK did vote to leave do you honestly think all the hundreds of thousands of EU citizens working in the UK will suddenly be given their marching orders? The UK economy will collapse overnight and never recover. Think about the hotels, pubs, agriculture, the City, SME’s and just about every other industry that has non UK citizens working for them. How will that manpower ever be replaced – IT WILL SIMPLY NOT
For now the GBP has recovered with the FED delaying rate hikes and the selloff in the USD – but for how long is the question. Volatility will remain over 20% and continue to plague the GBP until we know one way or another on the 23rd June, ARE WE STAYING OR ARE WE GOING – YOU DECIDE
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