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Hot Topic – GBP falls on fears of a Brexit
This week’s Asian session opened with the pound receiving a pummeling of 200 pips. It was down 0.9% against the US dollar to $1.4282 – making it the worst performing major currency during the trading session.
So what spooked the cable traders?
- The hot topic in the UK right now is the upcoming referendum on whether it will stay in Europe or not – otherwise known as ‘The Brexit’
- On Sunday, a key figure in British politics – Boris Johnson, the mayor of London, along with a number of other politicians, came out in favour of leaving the EU.
- Investors responded immediately and sent the pound tumbling against its trading partners
- By mid-morning in the Asian session, the euro was up 0.6% against the pound, reaching an almost 13 month high.
Let’s take a quick look at what’s driving talks of a Brexit
- It’s not a new debate, in fact it’s been hotly argued ever since the UK entered the European community in 1973.
- PM, David Cameron, announced on Friday that the vote will take place on 23rd of June.
- Mr Cameron and a large number of politicians, along with a majority of business are against leaving Europe, however a recent poll showed that nearly half of the public are in favour of an exit.
So what are the cons and pros for the UK to stay in the EU?
- Those in favour of a Brexit argue that EU regulations are holding back small-medium enterprise in the UK.
- That by exiting the EU, Britain would regain much of its political sovereignty especially over important policy relating to banking and immigration.
- Meanwhile the cost of EU membership is 11% of GDP.
- On the flip side, those in favour of staying in the EU argue that free trade with Europe is saving billions of pounds which out-weigh any membership costs.
- And as a major Financial hub, the free flow of workers would be seriously impeded if a Brexit emerges.
- As Europe represents 25% of global GDP, by exiting the EU, Britain’s influence on global finance would be lessened as well as making it a less attractive destination for Foreign Direct Investing.
We’ve got 4 months before the referendum will take place and it looks like fears of a Brexit will be a major driving force behind the sterling. How do you think a Brexit will influence the pound? Comment below and let us know your thoughts.
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