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Sterling volatility continues

Sterling fell towards its lowest in three weeks against the dollar this morning, nursing losses for a second straight week after Bank of England Governor Mark Carney warned of a recession if Britain votes on June 23 to exit the European Union.

Carney on Thursday called Britain’s referendum on European Union membership the “elephant in the room”, telling a news conference that it was the most significant risk to its growth and inflation forecasts.

In its quarterly inflation report, the BoE stepped up warnings about the economic risks of a Brexit, saying sterling could weaken and unemployment would probably rise. Carney said that a “technical recession” was possible in the event of a Brexit, but that was not the base-case scenario.

Carney’s comments triggered sharp criticism from those campaigning for Britain to leave the EU, with some accusing him of becoming too political.

Sterling fell to $1.4379 in the European session, with losses below $1.4375 set to take it to its lowest in three weeks. The euro was flat against the pound at 78.705 pence.

The BoE’s warning on the potential negative impact on the economy in the event of Brexit strengthens the “Remain” campaign by increasing fears.

Polls are pointing towards a very closely fought referendum and with only six weeks until the ballot, investors are becoming more worried about the risks from a potential exit.

Traders said the uncertainty was injecting volatility and that would keep the pound on a weaker footing in the near term.

As the vote day draws nearer we expect the pound to continue trading in a volatile manner, especially if the poll battle between the “Stay” and “Leave” campaigns remains neck and neck and the proportion of undecided voters stays elevated.”

 

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