The latest in our series of Guest Blogs covers the subject on everyone’s lips at the moment; the EU Referendum. Who better to talk about this than Alastair Constance who runs Mercury FX and Ethical Currency ; both of which help many of our clients transfer money from abroad.
Anyway, over to Alastair! …
Perhaps it’s a form of Stockholm syndrome but we cannot see Britain voting ‘Yes’ to Brexit on June 23rd. Like the outcome of the Scottish referendum in 2014 and the national election that saw the Conservatives unexpectedly come to power in 2010, when it comes to it, perhaps the British voter is more conservative and cautious than the early polls have historically suggested.
I’m not going to discuss the pros and cons of ‘in’ and ‘out’ here since there’s too much information around already and it is a personalised, circumstantial decision. I’ll try to keep this sober and informed and attempt to cut through the noise. We simply wish to form an opinion and share it with you and discuss the outcome for sterling in either scenario.
What I will say is this, we’re going to put our heads on the block and say that we as a company believe that there will be no Brexit.
Let’s follow the money; what are the bookies saying? ‘Bookmakers are offering odds of 1/6 – indicating a more than 80 percent probability – that Britain will vote to remain in the EU on June 23. By contrast, opinion polls present a confusing picture of voters’ intentions, with some saying the “remain” camp has a big lead while others have put the two sides neck-and-neck.’ http://uk.reuters.com/article/uk-britain-eu-betting-investors-idUKKCN0YF19W
More often than not the bookies know, except when they don’t, such as when Leicester won the premiership at 5000-1. Away from the bookies and looking at the polls which are causing major swings in the GBP market, the Financial Times is running a very useful ‘Brexit poll of polls’ tracker available here: https://ig.ft.com/sites/brexit-polling/
At the moment the ‘Stay’ vote is leading by 47% to the ‘Leaves’ 40%.
Finally, it is also fair to look at recent GBP price action since the price of sterling relative to other currencies is an excellent barometer of the mood concerning Brexit and also where the markets are pricing the risk of Britain leaving. Since David Cameron announced the referendum in December 2015 sterling has depreciated 13% as the market has priced in the political and economic risks associated with leaving. Over the last two weeks however, the pound has made a very positive come back against the currency majors (graphs included below). (GBPEUR, GBPUSD, GBPJPY).
Simplistically, the outcome for the pound of staying or going is a predicted 10% swing in either direction; 10% to the upside for sterling if we stay and 10% to the downside for sterling should we leave. It is difficult to say how long a sterling devaluation might last should we leave considering there will be merits to holding sterling, similarly to the merits associated with holding Swiss francs, if Britain were to exit the euro zone whilst still having very strong trading links, not to mention history and geographical proximity to the euro zone. In short, even if there was a Brexit, sterling might soon become a ‘safe haven’ currency. That’s down to what sterling leaving the euro zone might mean for the euro zone at large.
If Britain left it would trigger Article 50 of the Lisbon Treaty, the mechanism that allows any member state to exit the EU. That might have far-reaching implications and cause the weaker EU states to hold their own referendums on the topic. Right now the EU is becoming more polarised and the recent immigration crisis and talks of Turkish visa-free travel deal have caused a resurgence in right wing movements across Europe, most recently evidenced in Austria. Greece too may choose to leave as might Italy, Spain etc. The result is an implosion of the EU and the end of the euro. In that situation, sterling would suddenly become incredibly sought-after and valuable to hold.
Once again, we do not see this happening.
If you do wish to contact Alastair Constance and his team, which we do recommend if you are looking at transferring money from abroad for a deposit on a home or for any reason really, then you can contact them here or call them on 020 7199 3790 – say we sent you!