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Brexit risk still the key driver for the pound – MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Lee Hardman, Currency Analyst at MUFG, notes that the pound weakened further yesterday undermined both by an increase in perceived Brexit risk and expectations of a more dovish signal from the BoE at tomorrow’s policy meeting.

    Key Quotes

    “The latest ORB opinion poll released yesterday provided a further signal that the upcoming EU referendum remains a close call. The poll revealed that 47% wanted to remain within the EU compared to 49% who wanted to leave. It was a similar result to the previous ORB poll from the 25th February.

    More interesting, the poll revealed that when the likelihood to vote was taken into account, support to leave the EU increased to 52% while support to remain declined to 45%. With people more likely to vote favouring Brexit, the poll highlights that a low turn-out in the referendum would increase the risk of Brexit.

    The release of the UK Budget will be in focus today although it is unlikely to have a material impact on the pound. The government is likely to signal that further modest fiscal tightening will be required towards the end of parliament in response to weaker economic growth.

    The BoE are likely to acknowledge as well that economic growth appears to have slowed more than expected early this year undermined by building uncertainty ahead of the EU referendum. As a result the BoE are likely to display a more cautious tone which could weigh modestly on the pound. The pound would be hit harder if one of the more dovish MPC members started to vote for a rate cut.”
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