EU Referendum confirmed for June 23rd 2016- How will this affect the Currency Markets?

Many of you may already be aware that we have seen Sterling exchange rates fall by around 8-10% since December against other majors like the Euro and the Dollar, and much of this weakness has stemmed from the idea of “Brexit”- though it seemed like an early reaction, investors would rather be early than late.

After the EU summit in Brussels last week, David Cameron and Euro zone leaders signed a proposal which enables the UK to hold a referendum in regards to remaining or staying within the EU. According to PM David Cameron the EU deal gives the UK ‘special status’ and that ‘we have permanently protected our Pound and our right to keep it’. Since then the UK government has announced that the Referendum will be held on June 23rd of this year.

Since Friday, Five of Cameron’s Cabinet members have already moved against him, and the ‘Leave Camp’ have begun campaigning in earnest. Boris Johnson has also stated that he will be campaigning for the UK to leave the EU.

Now how does this affect the currency markets? Traditionally, the financial markets dislike change to the status quo, so the idea of the UK leaving the EU has been a massive factor in investors pulling out of the Pound, so for those of you who are selling Sterling between now and June 23rd, only steps towards Britain staying in the EU will keep the Pound from weakening further from where it already is.

If you have payments coming up between now and July; I would personally start preparation as soon as possible, there will be a lot of speculation between now and then which will most probably weaken the Pound- just to give you an idea of how things may look, the consensus with most analysts is to expect an eventual 20% drop in Sterling’s value should the ‘Leave’ camp come out on top. A completely reasonable expectation given that in September 2014 close polls for the Scottish Referendum saw rates for buying Euros crash by 8%.

Now due to Friday’s deal, I would usually think that the Pound would strengthen from the news, however due to the political reaction over the weekend, I don’t think we will see the Pound gain much against most currencies at all.

As ever if you have any requirements coming up please don’t hesitate to contact me.

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