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GBP: Likely to fall by a further 15-20% if Brexit happens - HSBC

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at HSBC, suggests that the GBP’s price action suggests that the market is already worrying about the EU referendum and the associated threat of Brexit.

    Key Quotes

    “For most of the last three years, GBP-USD has closely followed US-UK interest rate differentials. But since late 2015, as the prospect of the referendum has loomed larger for markets, a significant differential has opened up between the currency and the rate differential. This political risk premium is currently worth around 10% with interest rate differentials suggesting cable should be trading around 1.55, rather than the current 1.41.

    This gap has opened up against a backdrop of opinion polls showing a 50:50 divide in voting intentions. Meanwhile, the political betting markets are suggesting that the probability of a Brexit is around one-in-three. We believe that the currency market is also pricing a Brexit at around a 33% probability. So GBP-USD could fall by around another 15-20% should a Brexit become a reality – in other words if the probability shifted from 33% to 100%.”
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