GBP: PM Cameron moves closer to keep the UK in the EU - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 3, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the pound has strengthened modestly following the release yesterday of the draft deal to alter the UK’s relationship with the EU.

    Key Quotes

    “Prime Minister Cameron stated that the draft deal will deliver substantial change and he would opt to remain within the EU on these good terms. The proposals include a legal opt-out from ever-closer union and a stronger role for national parliaments, a greater push on competitiveness, safeguards for Euro-outs, including recognition of the multi-currency nature of the European Union, and restrictions on benefits for migrant worker for four years.

    Prime Minister Cameron will now hope to finalize an agreement with EU leaders at the special European Council scheduled for the 18th and19th February. With a lot of the finer details still be decided upon it is not yet a certainty that an agreement will be reached. However, it appears more likely that the referendum will be held as we expected in June. The British media have been reporting that the most likely date is the 23rd June.

    Once a deal has been completed it will be up to Prime Minister Cameron to sell it to the British public. Opinion polls have signalled that people are more willing to vote to remain within the EU if a credible deal is reached. Government support to remain within the EU will also help sway public opinion. However it is still too early to confidently predict whether the deal will be viewed as credible by the public.

    The latest opinion polls on average signal that the public is currently evenly divided on whether to remain or leave the EU. We believe that the pound is likely to become more volatile and weaken further as we move closer to the referendum driven by building uncertainty over the outcome.

    Ultimately we still expect the British public to vote to remain with the EU. Our view is based on the belief that the public remain more risk averse since the global financial crisis favouring a vote to stick with the status quo.

    A vote to leave the EU and jump into the unknown with global growth weakening would be a risky option to choose. Even if the public do not feel that strongly in favour of the EU, there is no clear alternative scenario should the UK leave which adds to uncertainty.”
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