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Sterling dives on UK referendum worries
Investors’ worries about the upcoming British referendum on whether to remain in the European Union on 23 June added to already existing fears of a global economic slowdown, and also crude oil prices which remain at low levels.
There are forecasts for increased volatility within the markets now that there are only ten days left before the ‘Brexit’ referendum and after the pound slipped dramatically. Stock markets have also been negatively affected and sparked demand for safe haven assets such as gold. A recent survey on Friday showed that there is no clear advantage for neither the ‘remain’ nor ‘leave’ supporters while the sterling dropped by more than 1%.
Results of most polls have been very close and although opinions collected through phone might suggest that there is a lead of ‘remain’ supporters, other polls are not providing anyone with confidence in either direction and so there is not much trust in any of them. The markets however remain nervous in case of a ‘leave’ result and hence the added volatility. Stock markets in particular have been driven by the release of polls on Brexit which also amplifies skepticism on whether there is healthy growth of the global economy.
The possibility of a ‘leave’ result could shake the confidence of the investment community and have an adverse effect on business around the globe. That might also lead to traders turning towards safe haven assets given that government bonds have already experienced added demand as yields on a number of them decreased. The chain reaction includes a decrease on expectations that the U.S. Federal Reserve (Fed) might not proceed with an increase during its upcoming meeting on Wednesday, for which the decision is expected at 18:00 GMT.
On Friday the GBP/USD decreased by 1.4% and ended the last week’s trading session at 1.42590, while at some point during the day it even slipped as low as 1.41788. The FTSE 100 index fell by 0.7% on the same day, while the U.S. S&P 500 and German DAX 30 fell by 0.7% and 0.5% respectively.
As an additional sign of traders’ nervousness, the price of gold surged by 0.6% reaching a three week high as the yellow shiny metal has been traditionally viewed as a safe haven investment. The yields of the German Bunds have also moved to record low levels, there are forecasts that they could soon dive all the way to zero and even enter negative territory.
This week’s main focus will undoubtedly be the Federal Open Market Committee (FOMC) meeting and interest rate decision. Recent comments by the Fed President Janet Yellen might have kept hopes for an interest rate increase on Wednesday, however the very low Nonfarm Payrolls data in combination with the upcoming UK referendum might leave no option for U.S. policymakers to vote against a rate hike this month.
http://www.ft.com/intl/cms/s/0/279dd5a6-2efd-11e6-a18d-a96ab29e3c95.html#axzz4BCxh0CU4
http://www.reuters.com/article/britain-sterling-idUSL8N1922W9
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