brexit

Uncertain times ahead for markets as Brexit vote looms

In the lead up to the Brexit vote on 23 June 2016, politicians on both sides of the aisle are arguing the merits of a Brexit. On the one hand we have the remain campaigners who include Prime Minister David Cameron, G7 countries, President Barack Obama, IMF chief Christine Lagarde, Chancellor of the Exchequer George Osborne and scores of other high-ranking officials. Those who are opposed to Britain leaving the EU include ranking members of the Tory party, various other conservative business leaders, the former mayor of London, Boris Johnson and a large contingent of the UK population. The reasons that so many folks are fed up with the status quo include: the open border policy, terrorist threats, pressures being brought to bear on the National Health Services, massive annual payments to Brussels, loss of autonomy in the UK, and the dilution of UK culture etc.

All of the aforementioned factors are swirling about in a convoluted maze of uncertainty leading into the historic vote on 23 June. Market analysts, traders and investors are deeply concerned with the potential impact on equities markets, the GBP and the overall impact on the UK economy. The anxiety brought about by a Brexit vote is what causes a depreciation in the GBP, and lower levels on the FTSE 100 index. When the uncertainty is removed, or diminishes, the FTSE 100 index rallies accordingly and the GBP appreciates relative to its trading partners. This is already evident in the current exchange rates of the GBP against its major trading partners. Consider that as at Friday, 20 May 2016, the GBP was trading at the following rates:

  • GBP/CAD currency pair was trading at 1.9023
  • GBP/JPY currency pair was trading at 159.8021
  • GBP/EUR currency pair was trading at 1.2930
  • GBP/AUD currency pair was trading at 2.0103
  • GBP/USD currency pair was trading at 1.4509
  • In all instances, the GBP has appreciated relative to its trading partners. This is the direct result of a widening of the gap between the remain campaigners and those favouring a Brexit. It is also interesting to point out that a prominent do-it-yourself brokerage in the United Kingdom, Interactive Investor, has pointed out that many folks in the UK have been stockpiling cash reserves in anticipation of a negative vote on June 23. They are concerned that a vote for a Brexit could cause the complete collapse of the FTSE 100 index, the GBP, the housing market and general investor sentiment. But from the other side, institutional investors who include fund managers will be looking instead to the opportunities created by the anxiety in the markets. With currency trading, there is tremendous profit potential when volatility is at its zenith, and that is precisely what is presented during a period of ongoing instability. With approximately four weeks to go, opinion polls are showing the populace leaning towards remaining in the EU, but it all depends on voter turnout on the day.

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