Sterling recovers slightly from recent slump
- Posted by Shyam Gokani in Bank of England, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Mark Carney, Referendum, Sterling, UK
- June 17, 2016
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The cost of hedging against sharp swings in sterling over the next week rose to a record high this morning as the contract rolled over to capture the date for Britain’s vote on whether it wants to stay in the European Union.
In the spot market, sterling recovered from 10-week lows against the dollar as both sides suspended their campaigns after a pro-European Union British lawmaker was killed on Thursday.
Some analysts said the killing of Labour Party Member of Parliament Jo Cox might boost sentiment towards the “Remain” campaign in the June 23 vote.
The market’s perception of Brexit probabilities may have been reduced in the last 24 hours but this is going to have a limited impact on currency markets unless it is followed through by polls released in the coming days.
Liquidity is very thin and there is not a lot going on there, but by the looks of things it means sterling/dollar will rise to around $1.5150 if there is a ‘Remain’ vote and drop to $1.3350 if there is a vote to ‘Leave’.
Sterling has suffered since the end of last year from a steady pricing in of risks from a Brexit, seen largely related to shocks to growth and the financing of Britain’s huge current account deficit. It has fallen 6 percent against a trade-weighted basket of currencies since the start of 2016.
Recent polls have given the “Leave” campaign an edge. But the implied probability of a “Remain” vote in the vote rose to 65 percent on Friday after falling as low as 60 percent early on Thursday, according to Betfair odds.
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