FX Research – GBP in no man’s land

Good Morning Readers!

v Brexit referendum will take place on 23 June 2016 – the second referendum since 1975. Latest poll suggests that supporters of Brexit are more likely to vote, which could give the “Leave” campaign a decisive in the final result. The campaign seems to be depending on emotive statements rather than rational facts.

v British Pound (GBP) has fallen to levels last seen during financial crisis to trade close to a no man’s land. Volatilities will rise further as a “Leave” vote would only start a torturously long process. If voters choose to leave EU, we assign another 10-15% depreciation on GBP as the exit could possibly take at least two years based on the Article 50, Lisbon Treaty. Else, this will become a simple binary outcome.

v Based on Scottish referendum on September 2014 and General election on May 2015, we argued that volatility has a tendency to peak and ease after key events while GBP/USD to stabilize with an appreciation bias thereafter.