WHILE THE UK goes to the polls this week on leaving the EU, uncertainty over a Brexit has sent the strength of the pound up and down.
A surge in support for Brexit had sent investors racing for financial shelter in the days ahead of a referendum that could redraw the political map of Europe.
It also sent the pound down to two month lows against the Euro as markets become increasingly uncertain, but the currency has rallied this week.
Part of that uncertainty is that nobody knows exactly what kind of Europe would be left behind should Britain leave.
Bookmakers put the chances of Britain leaving the EU at about 42%, a sharp rise from just a few weeks ago.
Last Monday, the pound dropped to a two-month low against the euro and dollar. However, it surged again yesterday as the race becomes tighter and tighter.
The pound has been on a see-saw as the referendum approaches, with critics of a so-called Brexit warning that leaving could spell disaster for Britain’s prospects.
“It is difficult to take long positions now ahead of the vote,” said Minori Uchida, head of Tokyo global markets research at Bank of Tokyo-Mitsubishi UFJ.
On the flipside, the euro has suffered in the last two days, with one of the single currency now buying just over 77 cent. That had hit 79 cent last week.
Kay Daniel Neufeld, an economist with the Centre for Economics and Business Research in London says that a Brexit would mean a depreciation in the pound which would mean better exchange rates for Irish people, but bad news for businesses.
Given the markets’ nervous reactions to polls showing Brexit in front, a vote to leave would almost surely lead to a shock in investor confidence and a flight out of sterling. Given the UK’s massive current account deficit this would lead to a sizeable depreciation of the pound making imports more expensive and thus adding upwards pressure on inflation.
Polls ahead of the British referendum have now become masters of market sentiment, said Greg Jones, managing director at Henderson Global Investors.
“As we come closer to the referendum vote, market reaction really depends on where the polls go with volatility likely rising on any prospect of a leave outcome,” he said.
With AFP reporting
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