GBP: Brexit Referendum Overshadows Everything – Commerzbank
Dr Jörg Krämer, Chief Economist at Commerzbank, suggests that on 23 June, a referendum will be held on UK membership of the EU which increases uncertainty which has allowed the GBP to depreciate markedly and the options market also reflects GBP skepticism.
“The uncertainty should persist up to the referendum. Our baseline scenario is that the UK will remain in the EU. GBP exchange rates should then recover.
In the case of Brexit, we expect substantial GBP weakness initially, especially when the financing of the current account deficit is called into question. The long-term effects will depend on how the relationship between the UK and the EU develops in future.
With inflation stubbornly low, a BoE interest rate hike appears unlikely before mid-2017, regardless of the Brexit vote.
The Fed remains the more aggressive central bank, which is why GBP-USD is capped to the upside.
The GBP has virtually no more room left to appreciate against the EUR as the ECB concentrates less on the currency channel, thus strengthening the EUR.”