Summary:
Just hours after British PM David Cameron returned from Brussels after renegotiating the terms for the UK’s membership in the EU, he was met with stark criticism as the Brexit’s ‘Out’ campaign gained early momentum. The British Pound which closed strongly on Friday following initial reports of a deal failed to capitalize on the gains. On Saturday, David Cameron announced that the UK referendum or ‘Brexit’ would be held on June 23rd. Hours later, London’s mayor and considered a frontrunner with the potential to be the next Prime Minister in the UK endorsed the ‘Out’ campaign.
The British Pound managed to stay flat in early hours of the Asian trading session on Monday but the bearish momentum gained strength as the European markets opened. Falling to a seven-year low against the US Dollar, the British Pound lost over 2.0% in a single day trading before managing to trim some of the gains by the NY trading close, highlighting the volatility of the Brexit uncertainty. Ratings agency Moody’s warned that an exit from the EU membership would risk the UK’s strong credit score, which currently stands at Aa1, investment grade. This follows Fitch which released a report that lengthy negotiations after a veto to exit the EU could hurt investments and businesses in the UK and dampen investor confidence.
While it is still too early to speculate on what the outcome of the referendum may be, the price action is seen on Monday merely underscores the importance of uncertainty. Besides the Pound, it is likely that the Euro will feel the heat as well. EURGBP remained choppy although the volatility as a lot less subdued. The Euro was seen trading flat near the 0.78 handle to the Pound, with some big institutions calling for further upside, as much as 0.85 in the coming months.
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