Sterling rises as remain side gains ground in Brexit battle
Sterling has rebounded against the euro to its strongest level since mid-March as the ‘remain’ side in the Brexit campaign gains momentum. But with just under two months to go until the crucial vote, Irish exporters are likely to face further currency volatility.
Although the UK currency has strengthened, it’s still trading at 77 pence to the €1, much weaker than last November’s 69 pence level.
Against the dollar, sterling jumped above $1.45 to its highest since mid-February, extending a week of gains, as investors believed voters would opt to stay in the European Union come June 23.
Specialist bank Investec noted that the odds for remaining in the EU have shortened. “A number of opinion polls on the referendum have been published over the past week or so. As we have mentioned before, one needs to be careful in poll interpretation,” the bank said in a note to investors.
“If anything though, the polls seem to have drifted modestly away from ‘leave’. As a result bookmakers’ odds have shifted as well. Odds on a ‘remain’ vote tightened significantly towards the end of last week, perhaps partly on the back of President Obama’s incendiary comments.”
Investors have been concerned that a vote for a Brexit would leave Britain exposed to a further slide by the pound – already weak compared with its historical average. But the intervention of President Obama last week in favour of EU membership, along with a shift in some polling towards the “In” camp, has shifted bookmakers’ odds against Britain voting to leave.
Just a fifth of institutional investors and 30pc of private investors across the Eurozone believe a Brexit will happen, according to the latest sentix Euro Breakup index. But 70pc feel the currency markets will be hit hard if it does, a survey suggests.
“The 1081 investors surveyed by sentix think that the general risk associated with a potential Brexit is moderate, at least for now,” said sentix analyst Julien Mueller.
Sterling’s slide against the dollar since last November reached almost 12pc earlier this month. It has recovered around 3pc in value in the fortnight since. But Juliet Tennent, an economist with Goodbody Stockbrokers, warned of further volatility.
“Despite attracting criticism for meddling in the domestic affairs of the UK, President Obama’s warning on trade appear to have had some impact and sterling has responded accordingly,” Ms Tennent said.
“However, with almost two months to the referendum, there are likely to be further twists resulting in volatility for sterling.”
Meanwhile, Friends First economist Jim Power has said consumer confidence here has been falling this year on the back of domestic political uncertainty, Brexit and global growth concerns.
In his latest commentary, Mr Power said that the prospects for the Irish economy this year are positive, but private and sovereign debt levels are still too high and the banking system is still not functioning properly, particularly for SMEs.
“It would be naïve and dangerous to become complacent,” Mr Power said. “The global economic and financial backdrop is very uncertain and risky at the moment and Ireland cannot remain immune to these forces indefinitely.”
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