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February 2016

Brexit fears still dominate market

Published: Thursday 25 February 2016

  • Brexit fears still dominate market 
  • HSBC estimate a 20% drop in Pound if UK leave
  • UK GDP figures could add to bearish tone around GBP
Sterling sank to a seven-year low yesterday as companies and investors rushed to insure themselves against the chances of a British exit from the European Union that HSBC said could knock a fifth off the value of the Pound. It has been the 3 worst days for the Pound since the crash in 2009. HSBC speculated that the currency could lose up to 20% of its value and economic growth would be likely down 1.5% if Britain were to exit the European Union. The latest opinion polls are showing the ‘remain’ campaign is ahead but it is still too close to call particularly with 4 months of campaigning between now and the vote. Sterling remains under pressure and the 2009 low of 1.35 against the Dollar now looks like a very real possibility.
 
Over in the United States, the Federal Reserve has been noting issues over the current low expectation levels for inflation. FED President Bullard said that they must act to stop inflation expectations getting too low and reiterated concerns about continuing to raise interest rates in the States. The Dollar weakened a touch as investors continue to scale back expectations of a hike in interest rates from the Federal Reserve.
 
The second reading of fourth-quarter UK GDP figures is due for release later today. The growth rate is expected to be left unrevised at 0.5%. If the actual figure matches the positive estimate, the British Pound may disregard the data, as Brexit fears continue to dominate market sentiment. A downward revision of GDP, however, would only add to the bearish tone around the Pound, while an upward revision, though positive in theory, may not be enough to push Sterling higher.
 
We also have EUR consumer price index data later this morning and US durable goods orders this afternoon. We then look ahead to tomorrow's US GDP readings which, if positive, have the potential to see the Pound hit the 1.35 low if combined with poor UK GDP figures.

Marriage

One man’s marriage has gotten a bit dull, so he asks a friend if he has any ideas on how to add some excitement back to the marriage
 
“Well,” his friends says, “you can always have an affair”
 
“I can’t do that! I will always be faithful to her,” the troubled man replies.
 
“If you convince her to let you do it, and then it won’t be cheating.”
 
The man agrees to give it a try. The next time his wife seems to be in a very good mood, he shares the idea with her that a new partner would add excitement.
 
“Honey,” his wife says, “that won’t help our marriage. Believe me, I already tried it.”
 
FX Research and Daily Currency Analysis by Charlie Horsley



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