Britain is finally going to the polls this Thursday, to decide whether or not they want to remain within the EU. Ever since Britain joined the European Community back in 1973, things have changed quite a lot, with requirements to remaining as a member, tightening after the creation of the EU. Basically, immigration, trade agreements and working conditions for locals and foreign is the main concern among British. But minor issues, such as being forced to use kilos instead of Pounds for example, are bothering the common people, not to mention, most of the kingdom is quite reluctant to leave the Pound, even PM Cameron, who is a firm defender of the "remain."
Back when we won elections in 2015, Cameron began some negotiations with the EU, to try to amend some of this "issues" whilst promising a referendum, finally setting the day for it last February. He achieved some minor victories in discussions with the other 27 EU leaders that may come into force should the "remain" win. If, however, the "leave" takes the lead, David Cameron will likely stand down, and leave some other leader to negotiate Britain's exit from the EU.
But what about currencies?
We have had an anticipation on how market's will respond to the outcome of the referendum, that is, panic selling and rising safe-havens on a Brexit, relief and high yielders soaring on a Bremain. But is that simple, really? It could be, on a temporal time frame, with long lasting effects on the Pound. No matter the outcome, and worse if the result is neck to neck, the UK will end up injured and split after this, and would take some time to heal the wounds. And the Pound will suffer too.
The GBP/USD pair will be reacting to partial results starting at 22:00 GMT, when polls close. The final results then, will be out sometime between midnight and dawn. At this point, the market is pricing in a victory of the "remain" which means that if that side wins, the Pound can advance further, up to 1.5000 against the greenback. A large victory of the "leave" on the other hand, will result in the GBP/USD pair plummeting towards 1.4250 probably, and even down to the 1.4000 region, if the difference is of 10% or more. The bearish momentum in Pound's crosses, will likely extend into the upcoming week.
The rest of the market, will react accordingly, but movements will be more moderated. A positive outcome can see the EUR benefiting, but seems unlikely the EUR/USD can run beyond the 1.1500 region with this event. A negative result on the other hand, can see the common currency plummeting on dollar's demand as safe-haven.
The other currency that will benefit, and much, with a "leave" victory, will be the Japanese yen. The Asian currency is strongly bullish ever since the BOJ remain on-hold during the last two meetings, and the GBP/JPY may plummet 300/500 pips, whilst the USD/JPY will move one step closer to 100.00. The opposite case, which will bring some relief on risk aversion, may see a tepid advance in this last, up to 106.00.
Gold is also expected to post wide moves with the outcome, already falling strongly on the back of positive hopes. The downside can extend down to 1,240/50.00, but seems unlikely it will settle too much lower, given that after the referendum is done, market's attention will shift back to Central Banks, and when it comes to gold, the delay in a US rate hike. A "leave" victory, on the other hand, should see demand for the bright metal soaring, with spot then back to $1,315, this year high, and beyond afterwards.
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