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Pound Sterling (GBP) Volatility Forecast Strongly on Brexit Odds

June 14, 2016 - Written by John Cameron

Sterling has fared well today, owing to no real damage being done by the latest EU Referendum news.

The Pound has remained a mixed bet against peers today, owing to the latest EU Referendum polls providing little comfort.

Pound Sterling (GBP) Exchange Rates Dived on Unfavorable 'Brexit' Poll



The Pound Sterling (currency : GBP) suffered sustained selling pressure in the markets yesterday morning as investors factored-in a higher perceived chance that the UK will vote to leave the European Union next week.

A series of weekend opinion polls suggest that the pro-Brexit ‘Leave’ campaign is beginning to move clear, with an opinion poll commissioned by The Independent newspaper, carried out by ORB, finding that 55% of respondents now intended to vote ‘Leave’. The implied 10% lead for ‘Leave’ was enough to cause investors to shift en masse out of Sterling-denominated assets, with the Pound euro exchange rate dropping down to its lowest level for some two months at 1.2521 GBP EUR.

The news from Britain also proved to be enough to increase levels of nervousness amongst global investors; the closely-monitored $VIX index, which measures the volume of protective ‘put’ orders placed by Chicagoan share traders when striking deals, jumping to well above the 18.00 threshold.

Only a week ago, the same $VIX gauge was coming in at below the 13.00 level. Some of the jumpiness amongst institutional investors during yesterday’s session was also driven by concerns at what tomorrow’s US Federal Reserve monetary policy announcement may yield.

Federal Reserve Policymakers Unlikely to Alter Policy ahead of EU Referendum Vote



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An increase to interest rates Stateside is considered unlikely for this side of the Brexit vote, but that hasn’t stopped US market participants fretting about the tone of the rhetoric contained in Fed Chief Janet Yellen’s accompanying statement. The Fed has a wont for effectively pre-announcing its decisions to hike interest rates - any comments to this effect from Yellen would be highly likely to knock global appetite for risk.

In such an instance, expect the Pound Sterling to incur renewed losses against the safe-haven Japanese Yen (currency : JPY) and Swiss Franc (currency : CHF). However, if investors do seek out the safest ports in a storm, the risk-driven Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD) would be forecast to take a hit.



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TAGS: American Dollar Forecasts Euro Forecasts Pound Sterling Forecasts

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