Monday February 22, 2016 - 13:32:40 GMT
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Why Has GBPUSD Sold-Off on Brexit Risk?
GBP has not only fallen sharply vs. the USD but on its crosses following the EU summit agreement that has paved the way for a June 23 Brexit referendum. Given the way it closed firmer on Friday the extent of the sell-off has probably caught many by surprise as the campaign to stay or leave the EU has just gotten underway.
The catalyst was said to be London Mayor Boris Johnson moving to the Brexit camp but this seems more of an excuse as 23 or 29 cabinet members have come out in support of PM Cameron pro-EU stance. A better explanation is the forex market does not like uncertainty and has clearly turned defensive. On the other hand, global equity markets are in a risk on mode today, including the FTSE, which at the time of this writing is +1.2%.
As I noted in Brexit Referendum and the Impact on Sterling, the UK faces 4 months of uncertainty in what will likely be a roller coaster ride driven by sentiment polls. In the meantime, the forex market has decided to shoot first and ask questions later by marking down sterling sharply today. the 2016 and 7 year low set on January 21 is close but still intact at 1.4080.
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