Brexit Fear Grips the Markets : Volatility Forecast for Pound Sterling (GBP) Tomorrow

June 15, 2016 - Written by David Woodsmith

STORY LINK Brexit Fear Grips the Markets : Volatility Forecast for Pound Sterling (GBP) Tomorrow

Midday tomorrow might see the Pound shift in value notably, due to the fact that the Bank of England is set to make its interest rate decision and release its minutes for June.

Federal Reserve Interest Rate Decision to Provoke Market Movement

Global investors will be eyeing monetary policy announcements from two of the world’s leading central banks over the next 48hrs to provide reassurance. Yesterday’s session saw investors abandon risk-laden assets, sending share markets into a downward tailspin which saw London’s benchmark FTSE 100 close down by over 2% at 5,923 points – the first time it has ended a session at below the 6,000 threshold since February.

However, the broad-ranging S&P 500 index in the US shed a considerably lower portion of its value on the day – only 0.18%. The relative lack of panic amongst US equities traders whilst those around them lost their heads suggests that they remain confident that tonight’s US Federal Reserve decision will not yield an interest rate hike.

Futures markets attest to this, with the implied likelihood of an increase in the cost of borrowing Stateside standing at only 1.9%. US investor sentiment was further assisted by a better than expected set of domestic Retail Sales figures, published last month. The US Commerce Department report pointed to a healthy 0.5% uplift in American shop sales during May– a figure which built on April’s showing of 1.3%.

Bank of Japan (BOJ) Interest Rate Decision Also Eyed by Investors

Meanwhile, on the other side of the world, investors are expecting action from another of the planet’s premier central banks. Persistently low levels of domestic inflation and the resurgence of the Japanese Yen (currency : JPY) during recent months means that the pressure is now on the Bank of Japan (BoJ) to act when it makes its latest policy announcement early tomorrow.

The potential that the UK will vote for a Brexit next week – an outcome which leading betting exchange Betfair (PPB.L) currently implies has a 38% likelihood of taking place – places additional onus on the BoJ to loosen its policy.

The major question vexing analysts is whether Japan’s lender of the last resort will act at this month’s meeting or in July. Capital Economics explained yesterday that, ‘the government’s decision to postpone the sales tax hike to 2019 has improved the economic outlook. However, we still believe that the Bank will respond to the recent moderation in underlying inflation by stepping up the pace of monetary easing, probably next month.’

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TAGS: American Dollar Forecasts Japanese Yen Forecasts Pound Sterling Forecasts