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UK decision to leave EU poses a significant risk to the EU - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 7, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at BBH, notes that some suggest a UK decision to leave the EU also poses a significant risk to the EU.

    Key Quotes

    “It was only in the UK's interest to have the G20 recognize the global risks of Brexit, so there can be little doubt that its appearance in the G20 statement was at the British government's insistence. Some media reports claim that sterling's slide is a function of investors "betting" that the UK votes to leave the EU.

    We see it somewhat differently. Most polls continue to show the at those that want to stay in the EU are ahead of those that want to leave. Investors are not betting against the polls, but recognize the risk of a significant downside risk for sterling and the price of sterling assets.

    It appears that what may be the first phase of risk adjustment is complete. Sterling traded higher every day last week after reaching a multiyear low near $1.3835 on February 29. The implied four-month volatility (covering the referendum) and the (25 delta) four-month risk reversals bottomed a few days earlier. There is risk that BOE Governor Carney's testimony in parliament (March 8) about the economic and financial impact of Brexit may stir up anxiety. If risk is a function of probability and impact, if the former stays the same but perceptions of the latter increase, another wave of reducing sterling exposure cannot be ruled out.”
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