GBP Falls On Fears Of A Brexit

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This week’s Asian session opened with the pound receiving a pummeling of 200 pips. It was down 0.9% against the US dollar to $1.4282 – making it the worst performing major currency during the trading session.

So what spooked the cable traders?

  • The hot topic in the UK right now is the upcoming referendum on whether it will stay in Europe or not – otherwise known as ‘The Brexit’
  • On Sunday, a key figure in British politics – Boris Johnson, the mayor of London, along with a number of other politicians, came out in favour of leaving the EU.
  • Investors responded immediately and sent the pound tumbling against its trading partners
  • By mid-morning in the Asian session, the euro was up 0.6% against the pound, reaching an almost 13 month high.

Let’s take a quick look at what’s driving talks of a Brexit

  • It’s not a new debate, in fact it’s been hotly argued ever since the UK entered the European community in 1973.
  • PM, David Cameron, announced on Friday that the vote will take place on 23rd of June.
  • Mr Cameron and a large number of politicians, along with a majority of business are against leaving Europe, however a recent poll showed that nearly half of the public are in favour of an exit.

So what are the cons and pros for the UK to stay in the EU?

  • Those in favour of a Brexit argue that EU regulations are holding back small-medium enterprise in the UK.
  • That by exiting the EU, Britain would regain much of its political sovereignty especially over important policy relating to banking and immigration.
  • Meanwhile the cost of EU membership is 11% of GDP.
  • On the flip side, those in favour of staying in the EU argue that free trade with Europe is saving billions of pounds which out-weigh any membership costs.
  • And as a major Financial hub, the free flow of workers would be seriously impeded if a Brexit emerges.
  • As Europe represents 25% of global GDP, by exiting the EU, Britain’s influence on global finance would be lessened as well as making it a less attractive destination for Foreign Direct Investing.
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