Brexit, Johnson and the Pound: Latest Reactions and Overreactions from the Markets and Analyst Community

Here are the views of a number of currency analysts in the wake of Monday’s deep slide in the pound sterling exchange rate complex.

The British pound has fallen in dramatic fashion at the start of the new week as the uncertainty posed by the EU referendum is digested by currency traders.

News that Boris Johnson, the vote-winning London Mayor, is joining the Out team has reignited selling pressure taking a number of key GBP pairs to critical levels.

The pound has actually witnessing its single worst day of declines since February 2009.

The pound to dollar exchange rate is 2% in the red, this takes us to the January lows at around 1.41. This is a significant area of support which could arrest declines. If not, we could be seeing levels as low as the 1.22 forecast by Handelsbanken.

The pound to euro exchange rate is also witnessing a key support level being tested. 1.28 has been attempted on many occasions by euro bulls but they have been thwarted by the pack of buy orders nestled at these levels. Again, a crack below here will trigger a kind of trap-door effect. Our analyst Joaquin Monfort reckons a break invites 1.25 and then 1.23.

Elsewhere we are watching eye-watering declines against the rand, Australian and New Zealand dollars. The trend here is down.

Analyst Reactions

James Rossiter, TD Securities:

"We think the GBP is likely to exhibit an asymmetrical response to Brexit risks in the weeks ahead, showing greater vulnerability to indications that the ‘Leave’ camp may be gaining ground than to hints that the ‘Remain’ contingent is holding firm. These developments introduce important downside risks to our GBPUSD forecasts of 1.45 for both Q1 and Q2 of this year as well as the trajectory beyond that point."

Connor Campbell at Spreadex:

“Whilst the jovial Johnson has roundly rogered sterling this Monday following his Brexit-backing bombshell, causing the pound to sink to a 15 month low against a basket of currencies following investors’ violent (and arguably over-pronounced) reaction, the FTSE held strong, starting off the busiest earnings week of the season (nearly a fifth of the index’s top 100 reporting in the next few days) in style.”

(Over-reaction indeed, a telephone poll, conducted on Saturday by Survation, suggests the level of support to stay in the EU at 48%, to leave at 33% and undecided at 19%. Will Johnson swing this?)

David Buik at Panmure Gordon:

"Brilliant Boris Johnson offers hope - articulate & passionate! He's right! This is 'Last chance saloon' to grab back control of our destiny!"

Sam Hill at RBC Capital:

With both Michael Gove and Boris Johnson coming down on the “Leave” side of the debate, and almost half of the Conservative MPs, it is understandable that Sterling’s initial move has been lower. As we said in UK: The Brexit files, “uncertainty is the only certainty” where the economics of Brexit is concerned.

John Cairns at Rand Merchant Bank:

“The major global market focus has been on the “Brexit” threat — the possibility that the UK might leave the EU in the vote that has been set for 23 June. Polls are mixed with a slight inclination towards a ‘stay’ vote. But the exit camp has been bolstered by the support of London Major Boris Johnson, resulting in some sharp sterling losses this morning.”

Lauri Hälikkä at SEB:

“Even before the campaign started, Cameron has suffered his first defeat as Boris Johnson, the popular and influential mayor of London, declared yesterday that he will be campaigning for a Brexit. It was a major setback for Cameron who had hoped to enlist Johnson to those who want the UK to remain in the EU.”

Kit Juckes at Societe Generale:

“I think we are likely to see further sterling weakness ahead of the vote itself, as the debate rages and uncertainty undermines confidence. I can't imagine the opinion polls moving decisively enough in either direction for clarity to emerge before June 23.

“In the process, I expect to see GBP/USD break 1.40 and EUR/GBP break 0.80 between now and then - possibly both at the same time. On a ‘Brexit' I'd look for GBP/USD to trade to 1.30, at least.”

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