GBP: All Eyes on 23 Jun Referendum
Opinion polls have now
swung in favor of Brexit, ramping up market volatility (GBP 2w vols at all-time
high of 39) and depressing the GBP.
It remains our base case
scenario for UK to vote to remain in the EU. In the event of Bremain (with
clear margin over Brexit), FX vols should ease and sentiment should recover
post-referendum. GBP should rebound. High beta currencies should see a breather
rally while safe-haven (CHF, JPY) could unwind. USD could be mixed – weaker
against the GBP and high-beta currencies but firmer against the safe-haven
proxies. We favor GBPCHF on dips towards 1.36 levels.
Our preliminary scenario
analysis shows that in the event of Brexit, GBP and GBP/AXJs could move lower
by around 10% on average. In the event of Bremain, GBP and GBP/AXJs could more
higher by around 5% on average.
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