GBP Rally Supported Partly by Big Lead for ‘Remain’ Camp – Danske Bank
Research Team at Danske Bank, notes that the GBP rallied sharply last
week supported partly by big lead for ‘remain’ in biased phone polls.
Key Quotes
“Opinion polls continue to signal a close race but ‘remain’ is still
ahead in most polls. Most notable was the Ipsos MORI poll published two
days ago, which showed a 55% to 37% lead for ‘remain’ (from 49% to 39%).
Although the poll showed a big lead for ‘remain’, we think one should
be careful not to over-interpret the poll result. The poll was conducted
by phone, which usually means a bias towards ‘remain’.
In the FX markets, the GBP rallied sharply this week supported by polls
showing an increasing lead for the ‘remain’ camp and
stronger-than-expected economic data. While some of the GBP
strengthening is justified by the strong data and an increase in
short-dated UK interest rates, our short-term financial models suggest
the GBP rally is beginning to look overdone.
In particular, GBP/USD currently looks stretched and is currently 2pp
overbought according to our models. According to our Brexit Risk premium
estimates, less than 1pp (2 std dev. confidence interval of -0.5 to
+2pp) is currently priced in the EUR/GBP spot rate. This implies that
EUR/GBP is likely to trade at 0.7500-0.7740 post the election in the
event of a ‘yes vote’. As argued in FX Forecast Update: In the shadow of
Brexit (18 May), we still see risks for EUR/GBP skewed on the upside
going into the election.”