By Lexington Communications
Sterling underlines market sensitivity around Brexit
For those planning June getaways it might be a good idea to buy your foreign currency now, as the pound has fallen sharply against major currencies including the US Dollar. The money markets have been particularly sensitive to last week’s ICM phone poll which both put Leave ahead of Remain. That spooked currency traders and triggered a fire sale of Sterling.
The pound’s movement illustrated just how sensitive markets are to Brexit and underlines warnings about the economic impact that EU withdrawal would have on the UK economy, at least in the short term.
Both the IMF and the Bank of America have warned that a Brexit could see as much as 20% wiped off the value of the pound as traders sell in favour of more stable currencies like the USD. That suggests that any further polls suggesting a move in favour of Leave will trigger renewed volatility in the currency markets.
Betting on the exit poll
The market sensitivity of the EU referendum explains why a number of hedge funds and banks are apparently paying for their own exit poll on the eve of the referendum. While they would be prohibited from publishing the results of a poll before 10pm on the day, they presumably calculate that any advance insight into the outcome of the poll could inform trades which could be placed ahead of the official result being declared. However that is a risky strategy.
While much has been made of the fact that the main news broadcasters will not be conducting an exit poll, some suggest that is because they believe there are technical problems that make such a survey unreliable. Exit polls in general elections are informed by looking at previous exit polls in previous elections but there is no such usable trend for the referendum. How reliable any exit poll would therefore be is open to question.
Will Leave take the initiative?
Vote Leave has been under pressure for several weeks to give more detail about what leaving the EU would look like. The lack of clarity so far has been seen as one of the main strategic weaknesses of the Out campaign.
Last week several announcements were made on immigration and VAT to coincide with the start of the Purdah period. Vote Leave has waited until there is a more level playing field before putting forward their policy proposals, as civil service resources can no longer be used by the Government to attack their proposals. This looks like a wise move and suggests a more strategic approach than they have been given credit for so far.
The proposed Australian style points system put forward by Boris Johnson has the potential to give Out the kind of ‘retail offer’ they have been lacking. Stopping EU migrants entering Britain unless ‘they can speak good English and have the right skills for a job’ is likely to be popular at a time when external events mean that border control is under significant scrutiny and net migration is way beyond the government target of tens of thousands. Remainers will be wary that David Cameron got a rough ride on the subject of immigration in his first TV appearance last week.
The question is whether having a strong message on immigration will be enough for Out. UKIP made it the centre piece of their campaign last year with only limited success and Out campaigners have admitted that to control immigration they will have to leave the Single Market, a point Remain will seek to emphasise in the coming weeks.