FXStreet (Delhi) – Marc Chandler, SVP at BBH, suggests that the immigration/refugee challenge may reach existential proportions and in some ways, it is more fundamental than Greece, which preoccupied investors at the start of 2015. Key Quotes “As we have seen in the debt crisis, EU officials are pushing for new collective powers that erode national sovereignty. The goal is enhanced ability to protect the external borders, even over the objection of national officials. The politically salient agenda of immigration, terrorism, high levels of unemployment, economic insecurity, and sovereignty, plays into the hands of demagogues.” “It is not clear when the UK will hold a referendum on its membership in the European Union (EU). Many expect it late in the second quarter of 2016. The UK has long seen its interest extended in joining Continental initiatives. Membership gave an opportunity to shape directions and outcomes. The expansion of the EU eastward has provided the UK new support for some of its positions.” “If the UK does opt to exit, we would expect sterling and UK assets, in general, to be marked down, and potentially sharply (depending on what had been discounted). However, we expect a cost-benefit analysis to ultimately carry the day, and for the UK to remain in the EU.” “The Bank of England (BOE) is widely perceived to be the second of the G7 central banks to hike rates after the Fed. A hike in late-H2 seems a reasonable time frame as 2015 comes to a close. However, wage growth, one of the few arguments favoring a hike, has already lost the upward momentum, and there are other signs that the UK economy may be slowing. The risk seems to hint towards a later rather than a sooner BOE lift-off.” “Easing monetary policy in December takes the ECB out of the picture in Q1 16. But if there is little improvement in inflation prospects nearer midyear, and if the euro remains resilient and oil heavy, then the doves may push for more action. Unlike previously though, it did not prove to be the case, Draghi did not indicate that the -30 bp deposit rate exhausts interest rate policy. Fiscal policy also looks to be less restrictive in 2016 than it had looked to up until late 2015.” For more information, read our latest forex news.