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Pound Sterling (GBP) Forecast Slumps as Fears of UK Brexit Swirl

February 22, 2016 - Written by Frank Davies

GBP/USD Exchange Rate at Worst Level since 2009 on EU Exit Nerves



The Pound Sterling (currency : GBP) has fallen to its lowest level against the US Dollar (currency : USD) since March 2009 during the last few minutes as fears that the UK may be about to exit the European Union increase.

The UK Prime Minister David Cameron returned from Brussels during the early hours of Saturday morning having secured limited reforms to Britain’s membership of the EU. Cameron claimed that his team had negotiated ‘special status’ for Britain in Europe, but investors are apparently less than convinced that this is the case.

Six of Cameron’s cabinet rapidly announced that they would be supporting the ‘leave’ campaign and things got worse for the UK leader yesterday afternoon when the Mayor of London Boris Johnson also confirmed that he would be campaigning for Britain to leave the 28-nation bloc. The ‘Boris Bounce’ has certainly hurt Sterling in the short-term, but analysts at UBS forecast that this effect could prove to be short-lived.

They put out a note a short time ago stating that ‘we expect UK markets to be volatile over coming days as the campaigns step up a gear and investors adjust to the prospect of a referendum four months from now, but our base case remains that the UK population will decide to remain in the EU. Our Brexit probability remains at 30% as we monitor the public response to the agreement with other EU members.’

Pound Sterling Dives against Commodity Dollars as Market Sentiment Improves



Currency market participants immediately moved en masse out of Sterling-denominated assets when the global markets re-opened for business yesterday evening, with the news also sending a ripple throughout global stock markets.

The negative sentiment surrounding the Pound has continued into today’s session with Sterling being heavily outperformed by each of the other sixteen most actively traded global currencies, including those experiencing weakness themselves.

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The Pound Sterling euro exchange rate had plunged by over 1% on the day, while the GBP USD exchange rate has tumbled to its lowest level for almost 7 years.

Sterling’s heaviest losses have come against the high-yielding Commodity Dollars which have enjoyed strong support on the session thanks to a generalised ‘risk on’ trading environment on the day.

The Pound Sterling South African Rand exchange rate and the Pound Sterling Australian Dollar exchange rate have both lost over 3.0% so far today and if concerns regarding a Brexit persist and global equities markets continue to move higher, then analysts forecast that there could be further losses to come for these pairs.

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