GBP Falls On Fears Of A Brexit

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This week’s Asian session opened with the pound receiving a pummeling of 200 pips. It was down 0.9% against the US dollar to $1.4282 – making it the worst performing major currency during the trading session.

So what spooked the cable traders?

The hot topic in the UK right now is the upcoming referendum on whether it will stay in Europe or not – otherwise known as ‘The Brexit’

On Sunday, a key figure in British politics – Boris Johnson, the mayor of London, along with a number of other politicians, came out in favour of leaving the EU.

Investors responded immediately and sent the pound tumbling against its trading partners

By mid-morning in the Asian session, the euro was up 0.6% against the pound, reaching an almost 13 month high.

Let’s take a quick look at what’s driving talks of a Brexit

It’s not a new debate, in fact it’s been hotly argued ever since the UK entered the European community in 1973.

PM, David Cameron, announced on Friday that the vote will take place on 23rd of June.

Mr Cameron and a large number of politicians, along with a majority of business are against leaving Europe, however a recent poll showed that nearly half of the public are in favour of an exit.

So what are the cons and pros for the UK to stay in the EU?

Those in favour of a Brexit argue that EU regulations are holding back small-medium enterprise in the UK.

That by exiting the EU, Britain would regain much of its political sovereignty especially over important policy relating to banking and immigration.

Meanwhile the cost of EU membership is 11% of GDP.

On the flip side, those in favour of staying in the EU argue that free trade with Europe is saving billions of pounds which out-weigh any membership costs.

And as a major Financial hub, the free flow of workers would be seriously impeded if a Brexit emerges.

As Europe represents 25% of global GDP, by exiting the EU, Britain’s influence on global finance would be lessened as well as making it a less attractive destination for Foreign Direct Investing.