Pound to Euro Exchange Rate Forecast to Swing Back to 1.40 on Brexit by NAB's Parson
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Assumptions that the GBP/EUR will plummet following Brexit could be wrong as one analyst tells us the euro exchange rate complex will be by far the biggest loser of an UK exit from the European Union it has been argued by a prominent analyst.
The euro has come under pressure against the dollar over recent days as markets start to see it as being at risk of a UK exit from the European Union.
The declines comes at the same time as market funding costs in euros rise - a symptom of waning confidence in the euro.
We have seen a widening in the EUR/USD cross currency basis swap, suggesting markets are taking precautionary measures by funding in dollars, rather than euros.
It is this lack of confidence that has Nick Parsons, Head of Markets Strategy, Europe, for National Australia Bank, suggesting that the EUR/USD could fall to parity on Brexit.
It is also interesting to note that Parsons believes the pound to euro exchange rate could actually end up higher following a Brexit vote as markets quickly shift focus to the future of the European Union and the single monetary system.
Pound to Bounce Back Within Hours of Brexit
Parsons (above), tells spread betting firm IG, that some of the assumptions relied on by the likes of the UK Treasury and Bank of England on how sterling will trade following a Leave vote are wrong.
We hear a lot from the Treasury and the Bank of England, and many other learned sources, about the instability that will come to the UK economy as a result of an exit vote.
The default assumption with regards to the currency in such an event is that the pound will plummet across the board. Indeed, in their latest Quarterly Inflation Report, the Bank warned of the downside risks to sterling and the economy posed by a UK vote to Leave Europe.
And it is certainly not just the Bank and Treasury who believe the pound will suffer long term against the euro, I would say this is the default view echoed by many.
"The turmoil that we are seeing in the build-up to the Brexit vote suggests that the day after the referendum – the 24th – will be a day of extremes for the pound, whatever the outcome of the vote. If Britain votes to stay in the EU, I would expect the pound to spike to its highest level this year. If Britain were to vote out, all signs suggest a massive and immediate drop in the pound
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