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GBP: Brexit fears return to undermine the pound - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 23, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Derek Halpenny, European Head of GMR at MUFG, suggests that the pound has clearly been the under-performer this week and in the G10 space is the worst performing currency, down a little over 2%.

    Key Quotes

    “The resignation of Ian Duncan Smith late on Friday has fuelled concerns over a more damaging division within government over ‘Brexit’. IDS resigned due to his opposition to cuts to disability benefits but being a high profile campaigner for ‘Brexit’ his resignation has led to obvious speculation that he had an ulterior motive!

    The terrible scenes that unfolded in Brussels yesterday has also added to negative pound sentiment – the logic being that terrorist attacks in Europe play into UK voters’ fears and strengthens the resolve of some to vote for ‘Brexit’ in order to “regain control of our borders”. However, we’re not sure of this logic. Firstly, the UK is excluded from the Schengen Agreement and hence being in or out does not alter the ability of the UK authorities to control tightly those coming and going from the UK. Secondly, a strong case could be made for the argument that splitting the EU is exactly what the terrorists are trying to achieve and this could easily harden the resolve for many to vote against ‘Brexit’.

    In reality though, the poor performance of the pound this week does highlight the fact that the pound is likely to remain vulnerable to a large number of unfolding events that merely highlights the uncertainty related to the referendum. With a large current account deficit to be financed we maintain that further declines back below the 1.4000 level versus the dollar are very likely.”
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