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Brexit risk continues to weigh on the pound - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 22, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Lee Hardman, Currency Analyst at MUFG, suggests that the pound has been the worst performing currency in the Asian trading session undermined again by heightened concerns regarding Brexit risk.

    Key Quotes

    “British Prime Minister Cameron secured a final agreement on changes in the terms of the UK’s membership of the EU at European Council on Friday. After a holding an emergency cabinet meeting on Saturday, Prime Minister Cameron announced that the EU referendum will be held on the 23rd June as widely expected. The changes in the final agreement compared to the draft proposal were relatively minor.

    The campaign period ahead of the referendum has now begun. The final agreement was sufficient for Prime Minister Cameron to campaign for “heart and soul” to keep the UK in the EU. In that respect the deal is important in securing his support which is expected to prove important in determining the outcome.

    The leave campaign has been boosted by the announcement from the Mayor of London Boris Johnson to campaign for Brexit which potentially could boost his bid to be the next Conservative leader as well. Opinion polls have shown that the public view him as the second most credible politician on this issue behind Prime Minister Cameron. It has increased investor concerns over the risk of Brexit weighing on the pound.

    The first opinion poll released after the final agreement will have provided some reassurance for Prime Minister Cameron. The Survation poll revealed that 35% thought Prime Minister Cameron has done well in the renegotiation compared to 29% who thought he has done badly. After subtracting for don’t knows, support to remain in the EU accounted for 59% of the vote compared to 41% to leave.

    The voting outcome is broadly in line with the results from other recent phone polls which have shown stronger support to remain in the EU than internet-based polls. According to the whatukthinks.org, support to remain in the EU has widened recently to an average of 54% in the last six polls compared to 46% to leave. The opinion polls will become more important drivers of pound direction now campaigning is underway. We continue to expect the pound to weaken and become more volatile as we move closer to the referendum to reflect heightened uncertainty over the outcome.”
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