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UK referendum: GBP tail risk spikes – SocGen

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 25, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at Societe Generale, suggests that a decline in support among UK voters to leave the EU has not stopped investors from selling GBP and bidding up downside risk against G10 and EM currencies at the fastest rate since the May 2010 general election.

    Key Quotes

    “Whilst UK voters generally welcome the new settlement deal agreed by PM Cameron with the EU last week Friday, the deep polarisation of political and public opinion over Britain’s relationship with the EU has raised the threat of a disorderly fall in the pound in the run-up to the EU in/out vote on 23 June.

    The implied probability of a rate cut by the BoE is unchanged at around 35%. SG Economics still see a 45% chance of Brexit which could reduce UK and EU economic growth by as much 1% pa and 0.25% pa, respectively, for ten years.

    The knock-on effect from the UK agreement with the EU is that public support to hold a referendum on EU membership is also rising in other EU member countries. Restoring the functioning of internal (Schengen area) and external borders, and a fair review of the Dublin regulation that governs asylum policy between member states will be crucial in the coming weeks to stop a further erosion of confidence in the EU and safe haven appeal of the EUR.”
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