Sterling and euro firm ahead of Brexit vote (VIDEO)
Most analysts still see the vote as too close to call and the mood remains shaky among financial investors worried that Britain’s departure from the 28-country bloc could derail growth and spell trouble for banks and a raft of global asset markets.
Still, a swing in bookmakers’ odds towards the “Remain” camp since the shooting of British lawmaker last week has helped sterling recover 5 per cent from lows around US$1.40.
“We’re really just seeing the tail end of the rally we saw from the start of this week,” said Stephen Gallo, head of European FX Strategy with BMO in London.
“There is a bit of nervousness in markets. (But) the bookmakers have been right ahead of all of these votes that have been key for markets over the past few years and the polls have not swung back (towards a Brexit) this week.”
Sterling, which some banks have said could fall below US$1.30 on a vote to leave, traded at US$1.4680, up 0.2 per cent from the close in New York but around a cent below yesterday’s high of US$1.4788.
While the Brexit vote continues to dominate minds, testimony by US Federal Reserve chief Janet Yellen yesterday was read by some as playing down the chances of a rise in US interest rates in July.
The dollar fell around 0.4 per cent to 104.42 yen and was 0.2 per cent lower against the basket of currencies that measures its broader strength.
Gallo said he thought the Fed would still be able to raise rates in July if Britain voted to stay in the European Union, and US jobs data shows another bounce this month from a shockingly poor reading for May.
Others are not convinced. US interest rate markets price in just a 12 per cent chance of a rise in official borrowing costs next month, according to the CME Fedwatch indicator.
“The Fed has moved away from a posture of preparing to deliver an additional hike to one of patience,” currency analysts from French bank BNP Paribas said in a note.
“We think the dollar does remain vulnerable with the Fed definitively on hold over the summer.”
Yellen highlighted the risks of Brexit, noting it could have “significant economic repercussions”. In a similarly guarded tone, European Central Bank President Mario Draghi said the ECB stood ready to act with all instruments, if necessary.
Draghi’s comments came as Swiss investment bank UBS warned its clients it may fail to execute some orders on its electronic trading platform should the referendum affect liquidity or cause extreme volatility. — Reuters
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