Hot Topic – Brexit

This week the sterling dives by UK referendum worries.

What Happened?

Today the GBP/USD declined further to 1.4120, after Friday’s 1.4% drop. Overall, Sterling has lost over 400 pips in the last 4 trading sessions with people now mentioning a possible retreat below 1.40 ahead of the referendum.

The FTSE 100 index fell by 0.7% on the same day, while the U.S. S&P 500 and German DAX 30 fell by 0.7% and 0.5% respectively.

As an additional sign of traders’ nervousness, the price of gold surged by 0.6% reaching a three week high as the yellow shiny metal has been traditionally viewed as a safe haven investment.

The yields of the German Bunds have also moved to record low levels there are forecasts that they could soon dive all the way to zero and even enter negative territory.

What led to this situation?

Most polls until now have shown the ‘remain’ in Europe vote to be slightly ahead of those voting for a Brexit

However, a recent phone survey has shown the Brexit camp slide into the lead

Volatility in the markets has since been running high as investors are getting jittery over the very real possibility of the UK leaving the Union.

What’s next?

This week’s main focus will undoubtedly be the Federal Open Market Committee (FOMC) meeting and interest rate decision.

Recent comments by the Fed President Yellen might have kept hopes for an interest rate increase on Wednesday

However the very low Nonfarm Payrolls data in combination with the upcoming UK referendum might leave no option for U.S. policymakers to vote against a rate hike this month.

What do you think lies ahead for the GBP?

Disclosure: None.

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