Beware the referendum countdown currency jitters

23rd February 2016


Investors must beware of currency fluctuation and consider knock-on effects ahead of the EU referendum, says Rowan Dartington Signature’s Guy Stephens…

The Brexit debate took another step forward over the weekend and it’s something we should get used to reading about over the next four months. The vote itself, for many, is likely to be an emotional one rather than a political or economic decision.

The issue of immigration for example is a small part of a much bigger picture but this particular topic is one that’s likely to draw enormous attention, given its focus within the media.  Even more so, should another terrorist event draw unwanted attention to this extremely sensitive subject leading up to the vote.

Cameron is due to unveil further details of the new membership terms he agreed with EU counterparts following lengthy talks in Brussels last week. He has insisted that he managed to win “special status” for the UK, including restrictions on benefits for migrants and an exemption from the much publicised EU goal of an ever-closer union. The finer details of which will unfold over time.

The PM’s job is quite probably reliant upon this – after all, it was Cameron who unilaterally started this ahead of the UK election, which surprised UK voters as much as the ministers in Brussels. His own camp though is split on the issue. Bizarrely, he may have to turn to the likes of Nicola Sturgeon and Jeremy Corbyn, for a less familiar list of allies to ensure his case for maintaining EU membership receives backing. Even if their underlying principles differ markedly.

Voting out has so far been seen as a minority view, albeit marginal, but there’s no doubt that it’s gaining traction. Boris Johnson has added his name to a list of less prominent Tory backbenchers who are set to oppose their leader. He described his announcement yesterday as a “…once in a lifetime chance to vote for real change in Britain’s relations with Europe”. Given his apparent desire to succeed Cameron, this should perhaps be of little surprise. Note that as of today he is the bookies’ favourite to be our next Prime Minister!

The market reaction today has been mixed. Sterling looks to have been the biggest casualty, suffering its biggest one-day fall in almost a year. The FTSE 100 however is rising, led back above the 6,000 mark by miners and oil stocks. Although this may be more related to a more general easing of the global growth concerns that have hampered sentiment year-to-date, rather than anything related to Brexit.

The consequences of either outcome are extremely difficult to forecast. As evidenced today, currency is likely to be particularly sensitive and clearly there are knock-on effects that must be considered.

If there’s one common lesson to be learnt from the Scottish Independence vote and the UK General Election, it’s that predicting the outcome of these events is nigh-on impossible, as opinion polls are often struggling to keep pace with the moving target that is current opinion. Financial markets don’t like uncertainty and I would be reluctant to expect any clarity to emerge on the topic before June 23.


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