According to analysts from Danske Bank, this week showed further signs that Brexit concerns have eased in the financial markets.
Key Quotes:
“In general, opinion polls continue to indicate a close race, with ‘remain’ slightly ahead. The implied probability of a ‘Brexit’ according to both betting odds (Betfair) and Matt Singh (a political blogger who correctly predicted the outcome of the May 2015 general election) is much lower around 20%.”
“On Monday, HM Treasury published a new report on the short-term economic consequences of a Brexit. In the main risk scenario, the Treasury finds that in the case of a ‘Brexit’ GDP would fall 3.6%, CPI inflation would increase by 2.3pp, the unemployment rate would increase 1.6pp, house prices would decline 10% and effective sterling would depreciate 12%. The ‘leave’ camp dismissed the findings and accused David Cameron and George Osborne of running a campaign of fear.”
“This week showed further signs that Brexit concerns have eased in the financial markets. This week, the GBP once again outperformed all other G10 currencies, implied FX volatility on GBP crosses fell slightly while expectations of a Bank of England rate cut in 2016 eased further in the UK money market. The market now prices in the first full 25bp rate hike in the UK in June 2018 (moved forward from December 2018). According to our Brexit Risk premium estimates, around 1pp is currently priced in the EUR/GBP spot rate. We still see risks for EUR/GBP as skewed on the upside going into the election.”
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