When the Conservative party was voted into power last year, it pledged that an In-Out EU referendum would be held before the end of 2017.
The prospect of a ‘Brexit’ was enough to spark exchange rate movement, but since PM David Cameron announced that the referendum will be held on June 23rd 2016, the Pound has dropped dramatically against both the Euro and US Dollar.
The GBP/EUR exchange rate has fallen by more than ten cents since the start of this year, sinking to a 19-month low of 1.2331, and the GBP/USD pairing hit a multi-year low of 1.3862 towards the close of February.
While the Pound has since recovered some of these losses against the US Dollar thanks to falling Fed rate hike expectations, with the latest polls putting the ‘leave’ camp slightly ahead of the ‘remain’ campaign, we can expect to see significant exchange rate volatility over the next few weeks.
Our ‘Brexit’ category is regularly updated with the latest news and developments, follow our updates to find out what’s happening and how the Pound, Euro and US Dollar exchange rates are being driven by ‘Brexit’ concerns.
The Pound Sterling to Euro (GBP/EUR) exchange rate could drop if the UK were to leave the European Union in a major referendum the Conservative government have vowed to hold by the end of 2017.
As speculation regarding the UK general election heated up in May, the Pound Sterling to Euro (GBP/EUR) exchange rate experienced both losses and choppy trading as opinion polls (however inaccurate) flooded the market.
UK General Election Aftermath Sees Pound (GBP) Exchange Rate Stabilise, ‘Brexit’ Debate Forecast to Cause Further Sterling Uncertainty
However, since the election uncertainty has died down, a new topic of debate has emerged—will Britain remain within the EU?
Many entrepreneurs and businesses have weighed in on the topic and the views seem, at the moment, to be relatively equal on whether Britain should or shouldn’t leave the union.
Deutsche Bank Set to Leave UK if ‘Brexit’ Occurs – Loss of Businesses Forecast to Pressure GBP Lower
Financial giant Deutsche Bank sounded warning bells recently when it stated that if a British Exit (‘Brexit’) were to occur, it may consider moving some of its operations out of the UK. Furthermore, other banks are likely to speak up regarding their moves if a ‘Brexit’ takes place.
One banking executive stated: ‘I think the banks will be more vocal about the risks than they were on the Scottish referendum. This could be an early sign of them gearing up.’
Other banking majors such as Goldman Sachs, Bank of America Merril Lynch, BNP Paribas, UBS and JP Morgan have thus far stated that they haven’t began planning a contingency operation if a Brexit were to happen.
One US bank executive stated: ‘Tell me what contingency arrangements can possibly be made. The process of disentangling the UK from the EU will take five years and I have no idea on what basis that will be done.’
While some institutions and experts think it would be severely damaging to leave the union, other experts have suggested that Britain could prosper significantly if it leaves.
Entrepreneur James Caan gives his two cents, saying: ‘We cannot ignore the statistics in this discussion; the EU is one of the UK’s main trading partners, worth more than £400bn a year – 52% of our total trade. Businesses on the ground are already sharing their concerns about how a “Brexit” might affect exporting services and key relationships with potential European clients.’
Prime Minister U-Turn’s after stating MP’s can’t Support ‘Out’ Campaign
There have been several interesting developments in the ‘Brexit’ scenario this week; firstly, UK Prime Minister David Cameron indicated that Conservative Party members who campaigned for leaving the European Union would face losing their jobs.
Cameron stated: ‘If you want to be a part of the government you have to take the view that we are engaged in an exercise of renegotiation to have a referendum and that will lead to a successful outcome.’
However, the PM took a U-turn on this stance after claims arose that there would be divisions amongst the Tory government. Additionally, Tuesday saw MP’s meet to discuss the potential ‘Brexit’ scenario.
‘Brexit’ Referendum Uncertainty to Play Havoc with Pound Sterling (GBP) Exchange Rate as Voters Debate Trade Agreements
There are some areas that may impact people’s decision when it comes to casting a vote in the referendum. For example, travelling within the European Union won’t be quite as straightforward as it is now and moving to another EU country permanently will also be more diplomatic.
The UK’s trade prospects wouldn’t be as limited in terms of who we have trade deals with. For instance, the UK could sign deals with China which Britain can’t currently do as the EU doesn’t have a deal in place with the world’s second largest economy.
There’s a rather large amount of speculation surrounding the outcome of the UK’s trade deals with the EU if it left. It would be likely that a UK/EU Free Trade Agreement would be implemented and as the UK buys more from the EU than the EU purchases from the UK, it’s unlikely the union would want to hinder its own trading.
In 2013, the amount the UK paid to the EU per year rose by a third, from £8.5B to £11.3B. Additionally, Brussels demanded an extra £1.7B payment in 2014.
Industry expert Matthew Elliot commented: ‘Despite David Cameron securing a historic EU budget cut, the cost of the EU to UK taxpayers continues to spiral out of control. We cannot continue to write bigger and bigger cheques to remain a member of an unreformed and uncompetitive European Union. Business is struggling under mounds of EU red rape and the UK economy is threatened by yet another potential Eurozone recession. We must secure a new deal from Brussels and that will only be possible through a referendum.’
Clearly, in the run-up to the UK referendum, the possibility of a ‘Brexit’ is going to hinder the Pound Sterling (GBP) exchange rate as investors price in the possibility of a political shakeup.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3738.