A short message from our partners, Moneycorp, on the current volatility in the exchange markets caused by the uncertainty of the UK EU Referendum.
Exporters Brexit Update
With the 23 June EU Referendum fast approaching, several polls have come out in the past ten days showing the Remain camp with a good lead over the Leave camp.
The pound started last week on the defensive. An opinion poll in the Daily Telegraph showed a narrowing of the advantage of Remain over Leave, but it was put to flight later in the day by another poll, this time in The Guardian, that put the Brexiteers four points ahead of the Remainists with a 48%-52% split. The unexpected result shattered the casual confidence of investors who had come to believe a vote to remain within the EU was in the bag. It seems that the poles are still too close to call.
This is quite an opportune time to sell GBP if needed and it may be the last opportunity to Sell EUR or USD at these levels as if the polls are confirmed by the vote, GBP will continue strengthening. Many exporters are looking at forward cover in preparation for the result.
Please see below the forecasts from 5 top banks that we work with if we were to leave the EU –
- Goldman Sachs: Estimates drop in the trade-weighted GBP of 15-20%. If the move was uniform across currency pairs, this would take GBP/USD to around 1.15-1.20 and GBP/EUR to around 1.05-1.10
- Reuters: none of the 45 strategists polled by Reuters said the economy would benefit if the "Out" campaign wins.
- UBS: Swiss bank UBS say Sterling could fall to parity with the euro if Britain votes to leave the European Union. UBS states the chance that the UK will leave the EU stands at around 40 per cent.
- HSBC: GBP could lose 20 per cent of its value against the US dollar, the bank believes, sending it towards $1.10 – a level not seen since 1985, when the UK was contending with issues including the miners’ strike.
- Deutsche: forecasts in a “benign” environment that GBP/USD of $1.28 by the end of 2016 and $1.15 by the end of 2017. In a "non-benign" or "worst-case scenario", sterling may depreciate an additional 10 per cent.
The key message is that this uncertainty is causing volatility in the markets so we are urging customers to consider hedging at least some of their requirements to protect budgeted levels.