Looming Brexit Vote Shows Why Investors Must Treat Currencies with Caution

Viktor Nossek, director of research at WisdomTree Europe, analyses the impact the EU referendum has had on sterling, and what a vote for Brexit would mean for both the pound and wider markets.

“The impending vote on the UK’s future in Europe has seen sterling volatility spike to levels not seen since the financial crisis, driven by sharp intraday swings as investors’ nervousness around the pound’s value, gravitating around $1.46 to the US dollar currently, increases. While there has been a marked improvement for sterling in recent sessions, sentiment can swing rapidly.

“Indeed if the UK was to vote leave, the volatility experienced would be severe and we would expect currency and UK risk assets to come under intense pressure initially. Longer term, the risk of barriers to trade and investment worsening the UK’s current and capital account balances would potentially put pressure on gilts. Rather than UK equities, which in large-caps are overwhelmingly multinationals with a global footprint that benefit from pound weakness, the government bond market would likely succumb the most to rising bearishness.

“By staying hedged until after the result of the referendum, investors can mitigate any further weakness for sterling in the event of a Brexit, whilst also retaining the flexibility to move back into unhedged investments if the vote for remain wins out.”

 

Share this page:

In this section

Shareholders to Enhance FDN

Fitch Ratings views the entry of the International Financial Corporation (IFC) and the Corporacion Andina de Fomento (CAF) as shareholders of Financiera de Desarrollo Nacional S.A. (FDN) positively.

READ MORE →

UK's Financial Services Trade Surplus is the World's Biggest

New figures from TheCityUK, the private-sector association and industry lobby group promoting the UK financial and professional services industry, reveal that the UK's trade surplus in financial services is the biggest in the world, more than two and a half times bigger than the next largest surplus recorded by the US and three times higher than Luxembourg in third and Switzerland fourth.

READ MORE →

Balfour Beatty Awarded £129m Smart Motorway Scheme

Balfour Beatty, the international infrastructure group, has announced the award of a £129m scheme to upgrade a 13.4 mile stretch of the M3 through Hampshire and Surrey to a “smart motorway”.

READ MORE →

PBoC Injects Cash into China

In an effort to stimulate growth and combat slowing output levels, the central bank of China has injected Rmb500bn ($81bn) into the country's banking system.

READ MORE →

Global Climate Finance Falls for a Second Year

Most comprehensive inventory of climate finance available shows that investment fell US$28bn from the previous year and remains far below estimates of what is needed.

READ MORE →

Balfour Beatty Awarded £32m Liverpool 'Baltic Triangle' Residential and Commercial Scheme

UK construction business awarded £32m contract to build Baltic Triangle, a three-tower residential development in Liverpool city

READ MORE →