The Sterling drop

The Sterling drop

The British pound has recently hit a new low as a possible Brexit is becoming a more prominent worry. With less than six weeks to go, discussions are heating up.

Regional and local elections which happened last year and in which Labour Party’s Sadiq Khan was named as the new mayor of London, had no significant influence on the Sterling.

The short to medium-term focus for the Sterling remains the EU referendum on June 23, with current polls showing a close race between in and out campaigners.

The GBP reached a peak of $1.4546 after the U.S. jobs report only revealed an added 160,000 jobs in April, rather short of the estimated 202,000. After that, it fell to $1.4422, its lowest rate since April 24 and a drop by 0.4% on that day alone.

“The earnings data counterbalanced the jobs number, which is why the dollar rebounded,” said RBC Capital Markets currency strategist Adam Cole. “I wouldn’t want to go long sterling into the weekend … The polls need to start improving from here, from sterling’s perspective.”

Although most polls are showing a head-to-head race between the two camps, bookmakers have consistently shared forecasts putting the “Ins” well ahead. Betting website Bettfair gives for example only a 31% to a Brexit actually happening.

Supported by these forecasts, some experts are expecting the Sterling to sky-rocket by as much as 20 cent from the current levels after the decision from next month’s vote have been revealed.

Most economists calculate that leaving the EU would deal a blow to the British economy, with a sizable current account deficit (7% of GDP in the last quarter of 2015), leaving it vulnerable to any retraction of investment. Any news that increases the likelihood of a Brexit, as a result, knocks Sterling.

“The economy could well be on a shaky road ahead of (the)Brexit (vote) in June,” said Western Union’s UK head of corporate treasury sales, Tobias Davis.

Source: Reuters

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