Pound plummets as ‘Brexit’ vote date confirmed

Major equity markets across the globe are continuing to maintain their recent recovery in momentum with a positive start to the trading week being noted in both the Asian and European trading sessions. Investors do now appear to be more attracted towards the equity markets as we approach the final stage of February, which is quite in contrast to the horrific and aggressive selling that the financial markets encountered during the opening weeks of 2016.

The recent rebound in momentum is occurring despite persistent worries about the health of the global economy, which have been complemented by headlines over the weekend from the Organisation for Economic Co-operation and Development (OECD) that world leaders need to take urgent action to tackle slowing growth and HSBC even announcing that slowing growth in China will contribute to a “bumpier financial environment”.

Overall I still think that there are a high number of different ongoing risks that the global economy is facing at present, which might come back to haunt investor sentiment towards the equity markets once again a bit later down the road. I would personally continue to monitor the price of oil because economies that are reliant on commodity exports have still not released full data that shows how depressed prices are likely impacting economic growth, and the breaking news over the weekend that the date for a “Brexit” vote has finally been confirmed as late June this year is definitely a risk that investors will need to monitor.

Pound losses accelerate once again

News headlines across the globe have been heavily dominated by confirmation finally being provided over the weekend that following intense and prolonged talks between UK Prime Minister David Cameron and other EU leaders a referendum date to vote on EU membership has been confirmed as being June 23. Confirmation of a vote has really sunk investor attraction towards a currency that has already been suffering greatly since the end of last year, and probably opens up the doors for further losses to the Pound over the next four of five months as uncertainty continues to filter through the atmosphere on the possible outcome of the historic EU referendum vote.

Even if the potential outcome of the UK leaving the EU is seen as low, investors are more than likely to be encouraged against discounting the possibility of the UK leaving the EU with so many in the markets remembering the dramatic swing in the days leading up to the historic Scottish referendum 18 months ago. Despite expectations being ongoing for months that a referendum was possible for June, I personally see the confirmation as negative news for the UK currency and it is definitely encouraging sellers to price in further declines against the Pound. Traders of the GBPUSD are probably finding inspiration to drag the Pound back to its milestone lows against the Dollar at 1.40 that was found only last month and if we breach below 1.40, then the currency pair could really sink down the charts.

When taking into account the possible upcoming risks for the Pound before looking into what the chances of the UK leaving the EU actually are, it is also important for investors to monitor what possible reactions from senior influencers there will be as the world continues to respond to a date being officially announced for what will be a historic vote. Even if market expectations over a Brexit outcome are low, more comments of support for a “Brexit” from the likes of London Mayor Boris Johnson are likely to swing some voters towards the direction of voting for an exit. There could also be threats of capital outflow and other concerns that major enterprises could threaten to vacate UK operations if there was a Brexit and this is why the Pound is at risk of facing a great deal of different threats on investor sentiment over the upcoming months.

I would also point out that if BoE Governor Carney managed to encourage market anxiety by just expressing the view that the risks over Greece last year would have an impact on UK’s financial stability you would only have to imagine what his stance is to the news that a referendum date has been confirmed for a few months’ time. Any expectations for a UK interest rate rise have already been repeatedly battered into the distance throughout the previous year or so, but we have now found yet another reason to dismiss any possibility over a UK interest rate rise with uncertainty set to dominate over the possibility around the UK leaving the European Union.

Moving forward, the already negative views on the British Pound in 2016 are going to continue regardless of how sudden the currency has declined over the previous couple of months. There are quite simply too many different factors that are going to impact on investor attraction towards the British Pound on an ongoing basis with this including anxiety over a recent slowdown in economic data, a never-ending stretch of pushed back interest rate expectations and now an increase in uncertainty over a possible exit of the United Kingdom from the European Union.

Gold finds support at $1200

Gold has once again found support at $1200 after falling by just over $20 as trading for the new week commences on improved demand for the Dollar. We still see the $1200 level as a significant psychological area for Gold and believe that traders are probably monitoring this area as a possible pivot point before deciding which direction Gold might move next. There is a still a great deal of uncertainty surrounding the true intention of the US Federal Reserve in 2016, which will likely continue to be a major catalyst for any spectacular moves in Gold.

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Ahmad is chief market analyst at FXTM