Over the last 6 months the exchange rate between the pound and the euro has fluctuated quite a lot but the overall movement has been decidedly downward.
‘If we take the Scottish Referendum as an example, the Pound saw massive price swings in the run up to the vote as traders reacted to opinion polls. This is likely to be the same leading up to June 23rd, with larger price swings possible given the importance of said vote.
So far markets are pricing in a 33% chance that the UK will vote to leave the EU. This means that if the UK does back a ‘Brexit’ there is certainly potential for massive Sterling losses, with some fearing a drop to 1985 levels.
On the other hand, Justin Knight from UBS investment bank (originally UBS was Union Bank of Switzerland) was quoted in the Financial Times
He believes the UK will vote to remain in the EU. In that case, if the economy remains relatively strong, he sees the pound strengthening and interest rates rising.
“The relative strong dynamics in the UK economy — including those of confidence measures — have held up during the past few months and are likely to persist at least until the referendum takes place,” he writes.
“If the people of the United Kingdom vote to remain in the EU then it seems likely that the market would start to anticipate Bank of England rate rises once more and that sterling would strengthen to prior levels.”
Of course it will not just be the exchange rate with the euro, possibly more significant will be how the pound performs against the dollar.
This is what the Guardian had to say on 24th Feb 2016.
The pound tumbled below $1.39 for the first time in seven years on Wednesday as analysts warned that a vote to quit the EU would severely damage the UK’s growth prospects.
Sterling dropped to $1.3883 and also suffered against the euro after HSBC issued one of the starkest warnings yet of the dire consequences from a Brexit vote.Analysts at the bank said sterling could lose another 20% of its value against the US dollar, pushing its value towards $1.10 – a level not seen since 1985 when the miners’ strike was in full swing
The more you read the more it becomes clear that if the vote is to leave, then in the short term the pound will decline, in the longer term it is uncertain. Obviously there are benefits as well as problems associated with a weak pound. On balance the problems probably outweigh the benefits.
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